An introduction to SIPPs, covering what they are and how they work.
A Self-Invested Personal Pension (SIPP) is, basically, a do-it-yourself pension. You choose what investments you put your savings into, and can easily manage them on an online platform, giving you more control over your retirement savings.
Unlike a standard pension, where your investments are chosen and managed on your behalf, SIPPs are a form of personal pension that give you the freedom to choose and manage the investments that you put your savings into.
If you’re comfortable doing so, you can make your investment decisions yourself, or you can pay an investment manager to make decisions for you.
You must be under the age of 75 to open a SIPP, and you are not able to access your pension pot until you are 55. However, the earlier you start to pay even a small amount of money into your SIPP, the more you will have to eventually fund your retirement.
You can pay into your SIPP on a regular basis, or make one-off payments. Your employer can also make contributions to your SIPP.
There are several types of SIPP;
- Full SIPP
- Low-Cost SIPP
- Hybrid SIPP
Full SIPPs have the widest investment choices, however they also incur the highest charges, and are best suited to people with large pension funds.
Low-cost SIPPs are less comprehensive in terms of choice of investments than Full SIPPs, and they don’t include owning property directly, offshore funds or investing in unquoted shares.
However, Low-Cost SIPPs still have a wide variety of investment choices, and they generally have lower charges than Full SIPPs. This means they may be more suitable for people with smaller pension funds.
A Hybrid SIPP is the middle ground between a traditional personal pension and a SIPP.
Hybrid SIPPs are often offered by insurance companies and you will usually be expected to pay a large sum of money into the company's investment funds before you're able to choose your own assets.