What is a SIPP?
A Self-Invested Personal Pension (SIPP) is a UK personal pension scheme allowing the investor greater personal control over the type of investment held. The type of asset class that might be included in an SIPP depends upon it being ‘allowable’ by HMRC, although in practise many SIPP operators apply their own restrictions to acceptable investments. Once in the SIPP the investor is able to build up significant sums in a highly tax efficient manner to provide for their retirement.
Contributions to a SIPP follow the same rules as any personal pension with tax relief on the contribution and tax free growth within the pension. The difference lies in where the investment might be made and the degree of flexibility when taking the pension.
An SIPP allows you the freedom to choose where contributions are invested following the HM Revenue & Customs Guidance Notes. HM Revenues & Customs regulate investments that are held by Registered Pension Funds through the above mentioned SIPP guidelines( a list illustrating just some of the typical investment choices is below).
- Stock Exchange listed Companies
- Unquoted shares
- Unit trusts and Open Ended Investment Companies (OEICs)
- Government Securities
- Offshore Funds
- Commercial Property – e.g. hotel rooms
- Land – e.g. woodlands and forests
- Hedge Funds
An SIPP gives you control, however, it also means that subsequently the risks can affect you directly, for example, the pension that you receive once you retire will depend on two factors; firstly, on how much contribution was made and secondly how the chosen investment performed. Another variable to be considered is annuity rates which can affect your pension depending where they lie at the time of purchase. SIPPs are frequently used as consolidation vehicles for people who have acquired a number of paid-up pensions throughout their working life and see SIPPs as being an ideal vehicle to bring them all under one roof.
An SIPP is not always suitable for every investor and professional financial advice should be sought. Capital Alternatives work with a number of such advisers and would be happy to assist with any enquiry.