The new pension freedom rules introduced in April opened up the retirement landscape and gave retirees more flexibility and choice. But when it comes to having ultimate control over your money, transferring your savings into a SIPP could be the best option.

Sherry-Ann Sweeting, marketing manager, SIT Savings Ltd, for The Scottish Investment Trust PLC, says SIPPs have a number of advantages but only for retirees with enough time and knowledge.

She writes…

“The new pension freedoms introduced in April open up a raft of options for anyone with a defined contribution (DC) pension scheme.

For some DC scheme members, buying an annuity or putting money into drawdown may still be the best option for securing an income in retirement while others may choose to take a cash lump sum from their pension pot and invest or spend it however they wish.

Although not a new feature introduced by the 2015 pension reforms, transferring your DC pension into a self-invested personal pension (SIPP) is another option which could enable you to have greater flexibility and control over your investments as well as the potential to generate an income in retirement.

SIPPs are an increasingly popular choice of personal pension. SIPPs are all about choice and flexibility.  As the name suggests, SIPPs give you the freedom to choose and manage your investments yourself allowing you, the pension holder, a level of control over your investments that you would not find in other types of pensions.

As your circumstances and priorities change throughout your life, so do your investment objectives. Those still in work will look to grow savings through a pension pot while people entering retirement are more likely to require their pension to pay out a steady income.

SIPPs allow you to tailor pension investments in response to these changing needs and also have the potential to provide both growth as well as income in retirement.

Some SIPPs take an unconstrained approach, allowing investment in more esoteric and risky areas such as property and art, while others are limited to more conventional assets, such as equities, bonds and gilts. This varied investment universe is one of the factors that allow SIPPs to help you build a well-balanced portfolio and provide potential for income in retirement.

However, pension holders need to be aware that with increased investment choice and control comes increased complexity. Active management and experience of investing are required for a SIPP. If you do not have the knowledge or the time to invest in a SIPP, another type of pension may be more suitable.  If you are not sure whether a SIPP is suitable for you, or whether you may be losing certain benefits by transferring to a SIPP, you should speak to a suitably-qualified professional adviser.

For pension holders looking to equities to provide an income, investment trust companies may prove suitable for those who can accept stockmarket risk in return for long-term potential.  Investment trust companies have a number of unique characteristics which could make them an option for both the growth and income elements of a balanced SIPP portfolio.

Investment trust companies have a long history of providing income for investors. Investment trust companies provide this income by paying out dividends to shareholders. However, unlike other funds, an investment trust company can hold back its own income in reserve.  If required, it can then pay its dividend out of these income reserves, enabling it to smooth its dividend payments during challenging market conditions, which can help to produce a more stable income stream for investors.

Pension holders and investors should remember there is a potential downside to every potential upside in equity investment and that past performance may not be repeated and is no indicator of future performance.  The capital value of shares and the income from them can go down as well as up as a result of market and currency fluctuations and cannot be guaranteed.  This means that investors may not get back the amount originally invested.”

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