Sipp v Personal Pensions

Is a SIPP or personal pension right for you? This blog shows you the key differences and helps you make an informed choice about your future.

SIPP is an acronym for Self Invested Personal Pension.

People often talk about these as if they are all the same thing, and in a way, they are both savings vehicle for retirement, and both types of plans have the same tax regime regulating what you can contribute and any benefits you take at your retirement.

The main differences are as follows:

1. Range of Investments – many of the personal pensions available now have an extensive list of available Investment funds from a range of fund managers. However, a SIPP will generally allow you to have access to more types of investments such as discretionary fund managers/ exchange traded funds/ shares & investment trusts.
2. Property – A SIPP has the ability to hold a commercial property within it – subject to certain conditions.
3. Loans – A SIPP can loan money to a company to help purchase the a commercial property. Additionally a mortgage can be arranged on the back of the SIPP as security. Again conditions apply to being able to utilise these options.

 

Costs

The basic cost of SIPP pensions versus personal pensions can actually be very similar. The difference usually being that the more you do with the SIPP such as buys shares or arrange a loan to the company, the more the charges would increase on a SIPP.

Personal pensions tend to have a % charge, and fixed fees are more prevalent on SIPPs.

Which one is right for me?

There is not a simple answer. That’s when you may benefit from the assistance of an independent Financial Adviser.

Arrange your first meeting with our talented pension financial advisers today. Call 01904 623888 or send us an email to talk about your financial future.

Some of the factors that would influence the decision between a SIPP or personal pension would be:

1. Your attitude to risk
2. The costs of each plan
3. You are requiring more sophisticated investment vehicles
4. Where you may want to buy a commercial property
5. What more active involvement in the Investment decision.

At the end of the day, there is no point paying charges for something that you will never use. It may be that you have a personal pension initially, but as your funds grow you may want some of the facilities of a SIPP, at which point you can easily transfer your funds across. There are also a number of SIPPs available which basically only charge you extra if you use additional facilities.

What about Stakeholder Pensions?

Stakeholder pensions are pretty similar to standard personal pensions, though there are a few key differences:

1. A stakeholder pension may have lower annual charges. These are limited to 1.5 per cent of pot size for the first 10 years, and 1 per cent after that.

2. A stakeholder pension may allow a lower minimum contribution – as little as £20 a month.

3. A stakeholder pension might invest in a narrower range of funds.

In reality as charges have reduced across the pensions market a stakeholder pension could actually be more expensive that a personal pension today, and this is something your Financial Adviser would consider.

A pension is a long term investment and helps you plan for your future. The fund value may fluctuate and can go down. Your eventual income may depend on the size of fund when accessed, interest rates and legislation. Taxation advice is not subject to regulation by the Financial Conduct Authority.

If you’d like to discuss your pension options with our independent pension advisers, please get in touch.