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Making the right pensions decision

Tuesday 9th March 2010

Hargreaves Lansdown offers the following guide to Self Invested Personal Pensions (SIPPs)...

What investments can I choose with a SIPP?
Since pension regulations were made more straightforward in April 2006, almost everyone in the UK is eligible to make a choice between a conventional Personal Pension and a Self Invested Personal Pension (SIPP).

But what is a SIPP, and how does it differ from other personal pensions?
A personal or stakeholder pension allows the individual to choose from what can be a limited selection of funds, which are provided by their pension provider.

SIPPs, on the other hand, offer the same tax benefits as other personal or stakeholder pensions, but allow for the individual to make a far greater range of investments from a wide range of providers.

What Investments can I choose with a SIPP?
SIPPs offer investors the choice of a wide range of investments from different providers.
These include Collective Investment Funds, which allow investors to entrust the choice of underlying investments to a professional fund manager. They pool your money with that of other investors, allowing investors to spread their investments across different asset classes. Such funds include Unit Trusts, Investment Trusts and Open Ended Investment Companies (OEICs).

Investments can also be made in stocks and shares, including investment in Government issued UK Gilts, individual and overseas equities, bonds and other fixed interest securities, permanent interest bearing shares (PIBS) and futures and options.

Finally, a SIPP can be used to invest in cash, traded endowment plans, loans and commercial property and land. The option to invest in commercial property is often used by business owners who wish their SIPP to own their business premises. However you cannot buy the bricks and mortar of a specific commercial property within the Hargreaves Lansdown Vantage SIPP.

In contrast, a conventional personal or stakeholder pension will normally be limited to insurance company managed funds, cash and deposit investments.

What investments are limited from SIPPs?
Not all SIPP providers allow all the permitted investment options and those that do tend to be more expensive. Residential property cannot be invested in directly, though it can be invested through a property fund, and investments in racehorses, classic cars, arts and wine are also not allowed.

Is a SIPP for me?
SIPPS aren’t for everyone, and those considering a SIPP should remember that any investment can fall as well as rise in value, meaning that it is possible to get back less than you invested. A SIPP is no different in this regard.

Some investors won’t need the flexibility and range of investment choice offered by a SIPP and so should consider a stakeholder pension. If they have access to an employer’s pension scheme then this should always be considered first.

SIPPs are designed for those who find the prospect of taking responsibility and organisation of their pension appealing, so if this sounds like you and you are starting a personal pension for the first time, they may be an option to consider.

Click here for more information or contact Hargreaves Lansdown's SIPP and Pensions Help Desk on 0117 980 9926.