The
new pension rules mean most people will benefit from taking control of their
fund with a Self Invested Personal Pension (SIPP). A SIPP is simply a pension
plan which gives you personal control over the investments held inside it.
These investments can include shares, cash, fixed rate investments and collective
investment funds and also commercial property. SIPPs used to be expensive, but
now there are several that are actually cheaper to run than many insurance companies'
personal pension plans.
Click here
to go to our SIPP Centre
Why would you want to control your pension fund?
Studies have shown that on average, the collective funds run by insurance companies
and made available to personal pension plan investors produce lower returns
than funds run by other managers.s
If you choose to buy individual shares, you can eliminate annual running costs
of up to 1.75%, which should boost your returns. You can create a set of investments
that match your requirements in terms of risk and return. You can keep the fund
going past retirement age and use 'income drawdown' to take an income
rather than surrendering your capital for an annuity income.
You can set up a SIPP with a cash sum, or by transferring into it existing
pension rights, either from an old employer scheme or from an old personal pension
plan. But before making any transfer, get independent financial advice since
there may be penalties involved.
Click here
to go to our SIPP Centre
SIPPs suit those with the time and knowledge to choose
I have had a SIPP for many years. It is not my only pension scheme since I also
have a conservative with-profit plan. Because I have this conservative plan
I am prepared to take more risks with my SIPP, which is largely invested in
shares in small UK companies. But I also include collective funds in my SIPP
- for example, I made nice profits on an 18-month investment in a fund investing
in India.
Buying and selling shares in my SIPP costs me just £12.50 per deal, and
there's no annual fee for the plan. This is a low-cost plan run by sippdealextra,
using Squaregain
as the online stockbroker. Hargreaves Lansdown's SIPP is also exceptionally
good value. If you want to buy your own commercial property, you will have to
pay a lot more in fees and charges.
Though SIPPs themselves are not regulated by the Financial Services Authority
(it is consulting on regulation to be effective from next year), if you stick
to large reputable providers you have little to fear. The assets you put into
the fund are held by independent custodians and if you take advice from an Independent
Financial Adviser you will also have redress because they are regulated.
Click here
to go to our SIPP Centre
Commercial property funds are an alternative to shares
You are not allowed to buy residential property in a SIPP, except as a member
of a syndicate owning a big chunk of property, an option that is only likely
to suit a handful of investors. But since you probably already have a large
proportion of your personal wealth tied up in your home, I would say that residential
property is the last thing you should buy inside your SIPP and that you should
spread your capital into other types of asset.
If you want a lower-risk alternative to shares, consider commercial property
funds investing in shops and offices run by the likes of M&G
and Standard
Life. There are also funds investing in overseas property run by Fidelity
and Schroders.
Because the new pension rules give you more freedom on contributions, most people
will be able to put lump sums into their pension plans if they wish and get
full tax relief – see
last week's article on the new pension rules.
Click here
to go to our SIPP Centre
Don't stick lump sums into an employer's scheme
Employees, though, should not add lump sums to an employer's scheme (they
are unlikely to benefit from matching employer contributions) because of the
risk element. Even with the new pension protection rules you are not guaranteed
that your pension rights from an employer scheme are always 100% secured (except
for public sector workers). That is one reason why many people are transferring
pension rights from old employments into SIPPs.
Given the very low charges on the HL and sippdeal plans, I think these are
the best pension option for anyone planning to contribute more than a few hundred
pounds a month to their own plan.
If you intend to use managed collective funds in your SIPP, use our selected
Best
Buy funds to get top-quality investments. If you plan to buy your own shares,
get recommendations for high-growth shares from Everyinvestor's free sharetipping
newsletter TheShareWeekly.
Click here
to go to our SIPP Centre
Important risk warning - please read
The value of your investment and the income from it can go down as well as up
and you may not get back a significant proportion of your investment. Past performance
is not an indication of future performance. If you are in any doubt as to the
suitability of an investment, you should seek independent financial advice.
