A Self-invested Personal Pension (SIPP) is a pension ‘wrapper’ that holds investments until you retire and start to draw a retirement income. It is a type of personal pension and works in a similar way to a standard personal pension. The main difference is that with a SIPP, you have more flexibility with the investments you can choose.
How do SIPPs work
With standard personal pension schemes, your investments are managed for you within the pooled fund you have chosen. SIPPs are a form of personal pension that give you the freedom to choose and manage your own investments.
Another option is to pay an authorised investment manager to make the decisions for you. SIPPs are designed for people who want to manage their own fund by dealing with, and switching, their investments when they want to. However, SIPPs can also have higher charges than other personal pensions or stakeholder pensions. For these reasons, SIPPs tend to be more suitable for large funds and for people who are experienced in investing.
What you Can and Can't Invest in
Most SIPPs allow you to select from a range of assets, such as:
- Unit trusts
- Investment trusts
- Government securities
- Insurance company funds
- Traded endowment policies
- Some National Savings and Investment products
- Deposit accounts with banks and building societies
- Commercial property (such as offices, shops or factory premises)
- Individual stocks and shares quoted on a recognised UK or overseas stock exchange.
How you access money in your SIPP
New rules introduced in April 2015 mean you can access and use your pension pot more flexibly from age 55. There’s a lot to weigh up when working out which option or combination will provide you and any dependants with a reliable and tax-efficient income throughout your retirement. Be sure to use the free, government-backed Pension Wise service to help you understand your options or get financial advice.
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