About SIPPs

What is a Sipp?

The clue is the name - self-invested personal pensions.

A SIPP allows you to make your own investment decisions giving your greater control and investment flexibility. In this sense they are DIY pension plans.

However, most people who set up a SIPP don’t actually take use the do-it-yourself option but invest in range of pension funds or portfolios in the same they would in a personal pension.

This means that in many cases ‘personal pensions’ and “self-invested personal pension” are effectively the same. However, there are some important differences:

SIPPs allow you to trade in shares and bonds as well as commercial property
SIPPs will normally have many more investment funds to choose from
Personal pensions may not have the full range of flexible options such as pension drawdown
SIPPs may have higher charges
It may be possible for SIPPs to borrow money e.g. to help purchase a commercial property

Types of SIPP

There are basically three types of SIPPs

Full SIPP – these allow investments in the full range of investments including commercial property and allow for the appoint of a discretionary fund manager (DFM)
Low-cost SIPP – normally online pension platforms with wide range of funds
Insurance company SIPPs – many of the leading pension providers have their own SIPPs with funds from other investment companies

SIPP investment options

SIPPs can invest in a wide variety of assets, from stocks and shares to cash to property. The types of permitted investments include:

Quoted UK and overseas stocks and shares
UK government bonds (gilts) and bonds issued by foreign governments
Collective investments (such as OEICs and unit trusts)
Investment trusts listed on any stock exchange
Exchange traded funds (ETFs)
Bank deposit accounts including non-Sterling accounts
Commercial property
Real estate investment trusts listed on any stock exchange

SIPPs can also borrow money to purchase some investments. For example, a SIPP can raise a mortgage to part-fund the purchase of a property. Such properties would normally then be rented out and the rental income, received by the SIPP, can be used towards servicing the mortgage repayments and the costs of running.