pensions

Self Invested Personal Pensions

What is a Self Invested Personal Pension plan?

For investors with larger pension funds, Self Invested Personal Pensions (SIPPs) offer a cost effective and flexible alternative to a conventional personal pension plan. As well as ongoing contributions, SIPPs are able to accept transfers in from other pension schemes.

What are the main advantages of Self Invested Personal Pension plans? SIPPs give the investor both financial freedom and flexibility of choice.

A SIPP offers you the freedom to choose where your pension funds are invested, within Inland Revenue restrictions.
SIPPs provide a flexible way of drawing income in retirement. If you are between 50 and 75 and do not wish to lock yourself into an annuity, SIPPs are a good way of moving into Income Drawdown. The minimum age will increase on 6 April 2010 to age 55.
SIPPs are also a cost-effective option if you have a large pension fund and wish to take a more active role in how your pension fund is invested.
Unlike Personal pensions, SIPP plans can invest in commercial property and land. This is often a valuable option for those who wish to purchase their own commercial premises. (You can use a SIPP to unlock the value of your pension funds to buy premises or land and then pay a rent back to the pension fund.)
It is also possible to increase the funds available to purchase a commercial property by using a mortgage.

What investments can be held in a SIPP?

The Inland Revenue regulates what investments can be part of a SIPP. Investors can, however, choose the degree of involvement they wish to have in managing their fund.

Since 6 April 2006, HMRC have not had a definitive list of permitted investments. Therefore, the following is only a guide.

Approved investments

Commercial property (with or without a mortgage)
Agricultural land
Authorised Unit Trusts and Open-Ended Investment Companies (OEICs)
Insurance Company Managed Funds & Unit-linked Funds
Exempt Unauthorised Unit Trusts
Building Society Permanent Interest Bearing Shares (PIBS)
Deposit Funds (eg Bank/Building Society accounts)
Traded Futures and Options (with the exception of certain derivatives)
London Stock Exchange listed companies
Companies quoted on a recognised overseas Stock Exchange
USM companies
AIM companies
Government securities
Quoted debentures
Loan stocks
Second-hand Endowment policies
Offshore funds
Unquoted/Private Company Shares*
Non-exempt unauthorised Unit Trusts
Foreign currency
Commodities

* Refers to unquoted/private company shares. This is a complicated area and there are restrictions, particularly where a SIPP member owns shares in the private company or where associated companies are involved.

However, HMRC, whilst not forbidding certain investments, makes them non-viable. These include:

Direct residential property
Loans to connected parties (eg family members)
Please note that the costs associated with SIPPs tend to be higher than for an ordinary personal pension and that professional advice should always be sought.