Five reasons SIPPs make sense
1) Investment flexibility
A SIPP provides you with more control and flexibility; unlike a traditional insurance company pension scheme, you are not restricted to the narrow investment funds of any one company. HMRC allows a wide range of investments, permitting in theory virtually any form of asset to be held. However, you must be careful not to invest in certain assets that may incur tax charges, including residential property and esoteric investments. There is also the ability to borrow to acquire investments, although borrowing is limited to a maximum of 50% of the fund value.
2) Facility to appoint a discretionary investment manager
Many people want the flexibility to invest in a wide range of investments, but do not necessarily want to do the asset allocation themselves. With a SIPP you can choose a discretionary fund manager (DFM) that has the investment expertise and in effect you outsource management of all or some of your SIPP money to the DFM. If you have a particular DFM that you want to work with, then it is worth checking that the SIPP provider that you choose to administer your pension has the links in place. The SIPP provider will have undertaken a lot of due diligence and checks on the firms they link with and so if your DFM is not linked with your chosen SIPP provider, it may be worth finding out why.
3) Ability to hold commercial property
One of the reasons that a SIPP has become so popular is the ability to invest in commercial property. This may not seem very exciting, but it isn’t just warehouses and industrial buildings, it can include football grounds, zoos, riverbeds and moorings, you can also buy them alone or do a joint property purchase. If you own your own business, it is also a way to expand your premises and see the rental money going into your pension, rather than to a third party landlord. There are of course risks, as there are with buying any property but if you have the right people managing it, then it can make it easier for you.
4) Generally superior service and more flexible approach
Specialist SIPP providers should have an open and flexible approach to dealing with you and should provide you with better administration and service that you might perhaps receive from a normal pensions firm. It is important to have high quality service and administration processes as a SIPP can be a very complex product to administer and if things go wrong, you don’t want to end up with a tax bill you were not expecting.
5) Usually feature fixed fees, not linked to the size of the portfolio
There is a lot of concern from the industry and consumers alike, that fees for pensions and investments are high. It is always important to understand what you are paying for and assess if it is value for money. A SIPP can be useful to consolidate a number of small pensions that you have. While headline fees may seem expensive they are often fixed fees and not linked to the size of the investment in your pension pot. That is why a large number of SIPP investors will have larger pension pots, of over say £100,000.
If you are considering a SIPP, and in particular investing in property, it would be wise to speak to an adviser who can make sure it is the right product for you and that it will be flexible enough to suit your needs up until and in retirement.
Nigel Bennett is sales and marketing director at InvestAcc