Self Invested Personal Pension

Also known as a SIPP. This is an enhanced pension plan – it tends to cost a little more to run than an ordinary personal pension – so it is more suitable with larger fund sizes – but why would anyone want one? The key is in the title – you make the investment decisions, but you need expertise.

Regular pensions invest across a range of pension funds – there might be a limited range or a very extensive range, and within those funds you may be able to access a great deal of diversification – or not as the case might be.

In a SIPP you can include more diverse items of value such as a share portfolio or commercial property for example – let’s have a look at both examples in a little more detail as they are the most common categories that clients want to talk about in my experience.

Shares, some individuals have accumulated share holdings from a number of directions including an Inheritance, Save-as-you-Earn schemes at work, privatisations or having had a ‘dabble in the markets’.

Many are happy to leave them for the potential of long term gains but do not know how best to trade them. They could switch them into a suitable pension scheme and benefit from additional tax efficiency for a start. The additional contribution from the tax regime could be put to work by helping to diversify the portfolio in terms of risk and exposure to a particular financial area. A well managed SIPP could sell holdings when a target value is achieved and invest the proceeds in an alternative way that might be more in keeping.

A SIPP can invest in commercial property – a wonderful opportunity to the business person who is renting a property – as he could effectively rent from his own pension fund so the rental income is paid to his retirement plan instead of a third party – how good is that!

If the current pension fund is not big enough to buy the whole property – some SIPP providers will entertain part ownership plus a commercial mortgage. The SIPP can borrow up to 50% of the fund value and it might be possible to boost the fund with a lump sum payment by the company.

In addition – a SIPP can provide a wider range of options when the time comes to take the benefits of your (hopefully) larger fund value.

This should not be considered advice because all the circumstances need to be taken into account along with accountancy and legal advice – an area that I am good at organising – so if you want to know more, please contact me for a free initial consultation.