2011 saw the launch of SIPP Zone on the Investment Sense website, in fact for us 2011 seems to have been dominated by SIPPs and other retirement issues.
As Marketing & Relationship Manager I’ve had countless meetings with SIPP providers, spoken to the majority of banks and building societies who provide deposit accounts for SIPPs and we’ve taken record numbers of SIPP enquires from potential clients.
I’ve spent some time reflecting on the past 12 months and after talking to our advisers am pleased to bring you six SIPP lessons we’ve learnt in 2011.
1. Service & investment flexibility are as important as price
Almost every SIPP enquiry we get starts by asking about investment flexibility or price, the numbers are roughly equal, but I’d argue you need to start by looking at investment flexibility and then consider price.
Don’t misunderstand what I’m saying here, value for money is important and our advisers work tirelessly on behalf of clients to get the best possible deal for them in terms of fees. However, you can have the cheapest SIPP in the world but it will be useless if it doesn’t have the investment flexibility you need.
Also consider service. This might not seem important at the outset, and it is certainly harder to quantify than price, but believe me, poor service will drive you mad after a while and moving SIPP providers can be an expensive business with many charging fees to leave.
There are a huge variety of SIPPs available, we’d suggest starting your search by narrowing your choice down on the basis of investment flexibility; make sure the SIPP provider allows the specific investment or platform you want.
Only then look at charges, factor service in too, and try and find a SIPP provider who provides the ideal mix of investment flexibility to suit your needs, efficient service and value for money.
2. “20% per year and our client’s capital is guaranteed?”….”No thanks!”
We all know that the SIPP rules allow more investment flexibility and 2011 has certainly been the year of the ‘alternative investment’.
We’ve been offered everything from Cemetery Plots, to Rain Forests, Storage Units to a car park in Dubai. In the past three weeks we have had three calls about land in the Cayman Islands.
Not every ‘alternative’ investment is poor value, but we would urge you to be careful, really careful in fact. These investments are not generally FSA regulated and it is often the case that the companies promoting them are not regulated either.
Guarantees often play a huge part in the marketing of such plans but are often not worth the paper they are written. Also be wary of huge returns.
In short, if it looks too good to be true it probably is!
3. Watch the cash
We are always telling clients and visitors to our website to shop around for the best savings interest rates.
Well, it’s no different when it comes to your SIPP.
The ‘current account’ which comes with all SIPPs generally pays a really poor rate of interest, usually less than Bank Base Rate, which as we all know is 0.5% and hasn’t move for what seems like a generation.
If you are holding money on deposit in your SIPP, and there are some very good reasons why you might want to do so, then it’s vital you shop around for the best deposit account for your SIPP.
If you excuse the shameless plug we are proud to produce what we believe to be the most in depth best buy table for SIPP deposit accounts.
If you hold cash then use it to get the best rate for your money, after all every little helps and in these times of low interest rates and high inflation your savings need to work harder than ever.
Just remember, not every SIPP provider will allow access to all SIPP deposit accounts. You can see a list of SIPP providers who offer unrestricted access to deposit accounts by clicking the link.
4. Check the compensation scheme
If you are planning to use a SIPP deposit account then make sure you understand which compensation scheme your chosen bank or building society is a member of.
Many ‘sippable’ deposit accounts are offered by the offshore arm of UK banks, often meaning that the FSCS (Financial Services Compensation Scheme) does not apply and the institution is a member of an alternative scheme, which will have different rules and limits to the FSCS.
Our deposit accounts for SIPPs best buy table contains links to the websites of the relevant schemes and you should make sure you understand them before you open an account.
5. Is your SIPP provider here to stay?
You might not think that the profitability of your SIPP provider should be important to you, or even a consideration when choosing the right provider for your needs.
However, we would argue that choosing a profitable SIPP provider, who has a sustainable business model, is vital.
Why? Because it might affect what you pay in fees and the service levels you enjoy in the future.
An unprofitable SIPP provider with a poor business model could be ripe for being taken over, indeed to survive it might need to be bought. Any takeover is likely to bring a change, perhaps not immediately but certainly over time, in costs and service levels.
The SIPP market is likely to consolidate over the coming years as the FSA focus more closely on providers, especially in regard to their capital reserves, make sure you are with a provider who has a sustainable model and you as confident as you can be that they will still be around in years to come.
6. SIPPs are ultimately for retirement, but along the way they can help your business
A pension is ultimately there to provide an independent source of income when you decide it’s time to finish work, sell your business or at least slow down a little.
For business owners and the self employed though we have seen in 2011 how SIPPs can be a real help to business.
Balls2Marketing and Charnwood Golf Range are two clients of ours who have used their SIPPs to buy their business premises. We have also talked to clients about how self invested pensions in general, remember that a SSAS (Small Self Administered Scheme) can be a useful alternative to a SIPP, can lend money to your business or perhaps buy shares in a business.
Pensions, including SIPPs and SSASs are there for retirement, but that doesn’t mean in the right circumstances they can’t be interesting and help your business along the way.
A word about 2012
We are committed to making the Investment Sense website the most comprehensive source of SIPP information.
2011 has been a really interesting year on the SIPP front, 2012 will see some exciting developments for our clients and DIY SIPP investors alike. We will tell you more in the New Year, in the meantime….watch this space!
Of course if you need any advice on an existing SIPP or you are thinking of investing in a new SIPP our team of advisers is here to help you. Pick up the phone and call them today on 0115 933 8433, or email info@investmentsense.co.uk
