SIPP stands for ‘Self Invested Personal Pension’. Think of it as a D-I-Y wrapper, which gives you greater control of the investment strategy of your pension pot and greater flexibility. Originally SIPPs were for people with a substantial pension pot. Although you now do not have to have a massive pension pot to consider a SIPP, they are unlikely to be a good idea for small pension pots or if it will only be a short time before you retire. A SIPP is definitely not for everybody. The value of a unit linked investment is not guaranteed on encashment and you may not get back the full amount invested. Despite the hype, a traditional pension wrapper may be better for you. You do need tailored, professional advice before opening a SIPP. The good news is that our initial appointment is free. Call us a fix an appointment to discuss your personal position.
The advantages of a SIPP include:
- Being able to invest in a wider variety of investments than you get in a normal personal pension including specific commercial property,
- The ability to borrow money (up to 50% of the SIPP fund value) to buy a property investment
- giving you day to day control over the “big picture” such as moves from shares to cash or vice versa,
Small business owners often use SIPPs as they allow investment in commercial property. You can therefore use a SIPP to buy freehold business premises (we can arrange a mortgage if needed). Set up in the right way, the business enters into a Full Repairing and Insuring lease, so the business claims against its tax all the expenses of renting and keeping the property in first class repair. Under current tax rules (which may change), the SIPP pays no tax on the rental income it receives or Capital Gains Tax if and when the property is sold. So the rent the business pays deals with any mortgage and the surplus rent increases the value of your pension pot in addition to any tax-free capital appreciation in the value of the property. There is also some scope for Inheritance Tax Planning. Naturally, you must consider the risk of “having all your eggs in one basket”. If the business fails then the costs of holding the property will come out of the pension pot until sale. Once the property is in the SIPP it cannot be used by the business to raise money for working capital, e.g. for expansion.
You should consider the following before opting for a SIPP.
- How confident are you about directing investment strategy? Are you happy to bet your pension pot’s performance on your active investment strategy?
- Will you have the time to devote to investment matters?
- If you do not do it, you must pay an expert to do it. Obviously, the more you use an expert the higher the costs paid, which could reduce your ultimate pension pot when you retire.
- The costs. Your costs could be significantly higher than under a stakeholder pension. So make sure you understand exactly what and how you will be charged. You may find yourself paying two sets of management fees: once for the SIPP’s wrapper and also for the underlying investments that you put into the SIPP.
- If you have a money purchase company scheme where your employer picks up the bills, is it worth paying your own charges in a SIPP?
- With choice comes risk. Some possible investments may turn out to be unsuitable, for example ETFs and commodities are allowed, but they could wipe out your pension pot if you get it wrong.
- There have been reports in the media that some advisors suggest transferring a final salary pension into a SIPP. Do not do it unless are clear what you are risking and you have clear written advice from a professional advisor to proceed.
We will advise whether a SIPP is right for you, the risks, which provider is right for you and on the investment strategy you should pursue. The value of a unit linked investment is not guaranteed on encashment and you may not get back the full amount invested. Our initial appointment is free of charge – no matter how long it takes. The Independent Financial Advisors we recommend are happy to meet at your home or office in London or Hertfordshire. The IFA may visit your home or office in another part of the UK. If you are further away, or you prefer, we offer meetings by SKYPE video-conferencing. We also have meeting rooms in London. Taking a little bit of time now can improve your standard of living in retirement quite substantially. Call us now to book an appointment to start the process. It is your first step to a better retirement.