Self Invested Personal Pensions (SIPPS)

Many thousands of people go it alone with Self Invested Personal Pensions.

They feel they can do a better job of investing their pension pots than professional pension fund managers, and many do very well. The option of making investment decisions themselves and controlling their own pension funds is often extremely appealing.

With market reforms Sipps are no longer a niche product but a genuine alternative to standard personal pension plans. These days it’s possible to start a Sipp with monthly contributions from as little as £50. Or you can set up your Sipp with a £5,000 lump sum from another pension plan.

Since 2008 those with protected rights contributions (defined contribution pension schemes) have had the opportunity to invest them in Sipps.

As with all pensions options there are pros and cons to Sipps. The major advantages are:

• You get to make your own investment decisions. You get to decide where you put your money.
• You have much greater choice. If your investments don’t do as well as anticipated, you can move your pot to another investment house. You aren’t committed to a badly performing fund.
• A Sipp can hold a wide portfolio of investments and assets including shares, gilts, unit trusts, insurance company funds, investment trusts and commercial property.
• Investing in commercial property can be useful for small business owners, allowing them to buy premises with pension funds. There are also tax breaks if you use the fund to purchase commercial properties, and other benefits.
• You can also use the business property as part of your retirement nest egg.

The drawbacks of investing in Sipps include:

• You cannot draw from a Sipp before you reach the age 55.
• A Sipp can work out to be expensive at the start, due to fixed administration fees. Therefore the larger the Sipp fund, the cheaper it can work out to .The flexibility of Sipps, allowing for frequent transactions can also push up their costs. (Though there are now a number of cheaper Sipps options in which the charges are a percentage of the fund).
• If you use a Sipp to buy a business premise, you risk your pension fund if the business folds or the pension fund may be forced to sell off your property.

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