How to choose the right SIPP
Over the past few years the popularity of self invested pensions, particularly SIPPs has increased. This is partly because more and more pensions are being labelled as SIPPs, but also because investors are becoming more aware of their flexibility and wider investment powers.
There are a variety of different SIPPs available, ranging from those which can only hold funds and are not much more than a glorified Personal Pension Plan to ‘full’ SIPPs offering access to any investment allowable by HMRC.
Self invested pensions are useful vehicles for diversifying investments, have wider investment powers, and can also be useful if you are in business. To read more about how a self invested pension can help your business click here.
However, choosing the right SIPP can be a confusing process; it is important that you end up with a SIPP which can do everything you require of it, but also that it offers value for money. Conversely, you should consider carefully whether you really need a SIPP; what’s the point in paying for flexibility that you will never use?
So how do you start to choose a SIPP provider?
What do you want to invest in?
Many people think charges should be the starting point; however it is more important to think about the assets or investments you wish to hold and then find the cheapest route to do this.
Do you just want to invest in funds? If this is the case then you do not need a plan with wide investment powers, simply one that can buy funds, of course at the cheapest cost.
Many people want to hold a proportion of their money in deposit based investments. It is surprising the number of SIPPs who only offer one bank account, usually paying an unattractive rate of interest, and will not allow other accounts in the SIPP. We believe if you are going to hold deposit accounts in a SIPP you need access to as wide a range of accounts as possible, you would expect this for money held personally, so why not in a SIPP? This is why we produce a list of deposit accounts available within a SIPP. Click here to see the list of deposit accounts available to SIPPs.
In addition to funds, direct shares are often held in a SIPP. If this appeals to you, think about whether you will buy these shares yourself or use a discretionary investment manager to advise you. If you are buying shares yourself, how do you want to trade? How often will you trade? Answering these questions will help you choose your SIPP provider.
Buying commercial property has long been popular in SIPPs, indeed this was where they first gained prominence. If you want to hold property in your pension, naturally you need to be with a provider who allows this in their plan, but more importantly they need to be experienced and competent at handling such transactions.
Finally, there are a number of investments that HMRC allow self invested plans to invest in that only a small number of providers will accept. Examples of this are unquoted shares, ETFs and Hedge funds there are also a number of others.
Make sure that your chosen SIPP provider will allow you to hold the assets that you want.
What else should I consider?
Consider who will manage your SIPP, do you want to do it yourself or do you need an adviser to help you along the way?
SIPPs fall into three main categories, those which can only be managed by an IFA, those which can be taken out directly by the investor and finally plans which offer both adviser and client access.
Think also about how you want to get information about your SIPP and how you want to review its performance.
If you are buying and selling assets on a regular basis, it is likely that you will want online access; this will also help to keep the costs of trades down. However, if you are investing in a relatively static asset, for example a property, online access may be less important.
Now think about charges
Once you have decided what you want to invest in, you should now consider which is the most cost effective SIPP for you.
SIPPs generally charge in two ways, flat fees or a percentage of the amount you have invested.
Both routes have their pros and cons. For example, a flat fee may be better for a larger fund and a percentage more cost effective for a smaller fund.
Flat fees tend to increase the more you ask the SIPP to do, however they do generally have the advantage that you only pay for what you use.
Think about the future
So, you have decided what you want to invest in, chosen the right SIPP for you, now take a moment to think about the future and how your chosen SIPP will cope with any changes to your circumstances or investment strategy which may occur.
For example, can you change your investment strategy with your chosen SIPP?
A good example of this is deposit accounts. You may have been happy to invest in funds whilst you were building up the value of your SIPP, however, as you get closer to retirement, you may want to take less risk and therefore open deposit accounts, a SIPP which only offers one deposit account may not be for you.
Think also about how much does it cost to move from your chosen SIPP if you need to change provider, the charges on leaving a provider vary massively.
Information is the key
Having more information about the different types of SIPP available to you will help you to make a better decision.
That is why we launched our SIPP comparison tables back in January 2011. They show the charges of the main SIPP providers, what investments their SIPPs can hold and a whole range of other useful information, all designed to help you make better decisions.
Of course we are also here to give advice, we specialise in self-invested pensions and are experts at working through the process outlined above to make sure you end up with the right SIPP for you.
If you are considering taking out a new SIPP or would like to have your existing plan reviewed, then do not hesitate to contact our advisers. We are highly experienced and knowledgeable about the SIPP market and are here to help you make the right decisions.
Call us today on 0115 933 8433.