Self-invested personal pensions (Sipps): Types of Sipps to choose

 
Couple sailing

Sipps are no longer for the rich - and one might make your money go further

When Sipps (self-invested personal pensions) were introduced in the 1990s, they were designed for the very rich, or for business owners who wanted to fund commercial property from pension savings. 

All this changed as the development of the Internet made direct trading of assets possible.

A number of firms have low-cost Sipps designed for more modest savers who wanted to share in the benefits that they offered.

Today, Sipps are becoming ever more popular, and while these are complex products that are not right for everyone, they’re worth considering if you’re looking for greater choice and control over how your pension is invested.

The pension freedoms, introduced in 2015, have increased the appeal of Sipps again as people take longer-term control of their retirement saving. 

Find out more: Income options for your pension under the 2015 rules - see your options

Which Sipp is which?

There are three types of Sipp for investors to consider – full, lite and hybrid.

Full Sipps

These Sipps offer the widest choice of investments.

However, they have the highest set-up and annual charges, and they’re really suitable only for those with commercial interests or large pension funds.

On top of this, you still have to pay an Independent Financial Adviser’s (IFA) fee, fund manager fees as well as other one-off charges.

There are also special fees for dealing directly in commercial property, and for making in specie transfers, where investments are transferred direct to the scheme rather than selling them and investing the cash. 

The typical sum invested in this type of Sipp is between £150,000 and £450,000.

Lite Sipps

While less comprehensive, these still offer a wide range of investment choices, but they rule out owning property directly and investing in unquoted shares. 

Popularised by Hargreaves Lansdown, James Hay, Charles Stanley Direct, Barclays Stockbrokers and AJ Bell, they’re normally ‘execution only’, meaning that you take no investment advice from the firm. 

Unlike for full Sipps, you don’t have to use an IFA. Average values tend to be lower, starting at around £50,000.

Sipps tax relief

Like all pension schemes, Sipps qualify for up to 40% tax relief on the money you put into them, although this may become less generous.

The only similar ‘tax-efficient wrapper’ is a stocks and shares Isa, but these have an annual contribution limit of £15,240 from April 2016.

The annual limit for tax relief on pension contributions is now £40,000. If you put in more than this, you may have to pay a tax charge on the excess. It is possible to carry forward unused annual allowance from the last three years to the current tax year, however, so you might not have to pay the annual allowance change. HMRC has further details on its website - see Understanding the annual allowance for pension schemes.   

More on this...

Last updated:

April 2016

Updated by:

Paul Davies

 

Which? Limited (registered in England and Wales number 00677665) is an Introducer Appointed Representative of Which? Financial Services Limited (registered in England and Wales number 07239342). Which? Financial Services Limited is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited. Registered office: 2 Marylebone Road, London NW1 4DF.