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| A SIPP is just a wrapper that contains
your own investments, chosen by you, that are to eventually
provide you with a pension |
SIPPs used to be expensive. Now they are not. You
just buy the SIPP wrapper and stick your own investments in it (subject
to the Pensions Act rules). You also avoid IFA commissions (which
is why IFAs prefer to sell you pension plans). Perfectly simple.
Not only are investments within the SIPP free of tax
but your contributions to your SIPP are also tax deductible against
your income (subject to complex limit rules that your adviser should
explain).
But SIPPS have some pitfalls
SIPPS have been around for some time, but primarily as wrappers
for the rich (those who could afford tailored pension arrangements
instead of buying a plan off the shelf). Only recently have they
begun to enter the mainstream - driven partly by competition and
partly by regulatory changes in April 2006. This history explains
some of the following:
- Set up charges can be high. It's possible
to pay £1,000 + VAT. It's also possible to pay less than
£100
- You cannot always invest in the full range
of assets allowed by the pension regulations.
- Some SIPPS do not in fact allow you to manage
your investments directly. You get (and pay for) a manager.
What now?
The very flexibility of SIPPs makes it difficult to chose one -
there are many variations. If you just want share dealing the discount
brokers are likely to be your best shot. If your preferred provider
wants you to make a long term commitment to his services look very
carefully at things like reputation, track-record and evidence of
administrative competence.
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