To choose the right SIPP for a given set of circumstances is a far from straightforward exercise. There are many different options and a direct comparison can often be difficult. In this post, we attempt to cut through the mass of detail to summarise the key points to consider.
A Self Invested Personal Pension (SIPP) allows an individual to save for retirement by choosing their own set of investments including shares, and commercial (not residential) property. A SIPP offers all the tax advantages of any other personal pension arrangement.
The keywords are ‘Self Invested.’ It is the responsibility of the individual (and/or their advisers) to manage their investments appropriately to deliver the best return. A SIPP is not the right approach for everyone and it is important to consider the benefits and risks.
The majority of investors (some estimate >80%) invest in SIPP’s via a platform (often known as supermarkets). These offer access to a wide range of investments and are a relatively simple way to manage those investments including buy, sell, switching and valuation all via online portals, including in many cases mobile Apps. The choice of platform can often be just as difficult as choosing the SIPP.
The key points to consider when trying to choose the right SIPP are
- The available investment options.
- The level of service/support available.
- The fund management including background and experience and the overall financial strength of the provider.
What Investment Options Are Available
In principle, a SIPP can hold a wide range of investments but some SIPP’s will not hold the full range available. For example, some will not allow you to invest in shares and investment trusts directly.
Ideally, it would be best to choose a SIPP which offers the full investment range but choosing the right SIPP is a comparison exercise based on all of the criteria listed above. Choosing a SIPP without the full range of investments is not necessarily a problem.
Considering the range of assets available in a SIPP also gives an indication of risk. A SIPP that offers a wide range of investments is likely to be less at risk of potential financial problems than one that only invests in only a few (perhaps higher risk) types of investment.
Does The Service Level Match Your Requirements
Ideally, we would all like a SIPP provider that provides excellent telephone support, educational programmes and seminars and personalised help and support but that all comes at a cost. For a more experienced investor why pay for what you don’t need. Alternatively, for the newer investor paying for high levels of support could be worth every penny.
There is a wide range of SIPP’s on the market. Some are provided by the major pension companies while others are provided by a specialist, much smaller, businesses. Choosing a SIPP from a smaller or newer player in the marketplace is not necessarily a problem as some may have advantages over the more established players but it is important to do your homework and evaluate the risk. The provider could be at risk if some of the investments held fail.
This can be the most difficult item to compare. Not all costs are transparent, it can be difficult to compare like against like and charging models may be based on a SIPP/platforms target market. For example, one SIPP/platform may target high net worth clients and will build their cost models accordingly. This cost model may make perfect sense to the high net worth individual but make no sense at all to the smaller investor.
Of course, any individual with the time (and inclination) to make an assessment of all available choices could choose their own SIPP/Platform package. However, mistakes can be costly in terms of fees and in the costs (and time) involved in moving to another SIPP/Platform if the first does not meet your needs. It is worth making an assessment of the potential for loss versus the cost of professional financial advice.
The information in this article does not constitute financial or other professional advice. You should not take action on the basis of this article without seeking regulated independent financial advice that addresses your specific circumstances.