Over the years we’ve been running this blog, we’ve written about and discussed many different financial topics.
One thing we’ve never written about is the self-invested personal pension – or SIPP for short.
What is a SIPP and how can they be useful for your retirement strategy?
The self-invested personal pension
Self-invested personal pensions (SIPPs) are a type of personal pension that grants you a greater degree of freedom when it comes to investing your money and managing your assets.
Most standard personal pensions only allow your savings to be invested in a limited list of funds.
Additionally, your savings are managed by the provider who chooses which funds to invest in and keeps track of their performance.
SIPPs give you greater flexibility. They allow you to invest in a wider range of assets and put the decision-making in your hands about which assets to invest in and when to invest.
Some SIPPs also give you the option of borrowing money to buy assets.
As such, the owner of a SIPP will typically be someone who understands the process of investing, and has the time to conduct the research and make the right investment decisions.
What can I invest in?
Using a SIPP for your retirement saving allows you to put your money into a number of different assets, such as:
- listed UK and overseas stocks and shares
- unlisted shares
- corporate and government bonds
- collective investment schemes such as unit trusts and open-ended investment companies
- investment trusts
- commercial property and land.
Types of SIPP
SIPPs come in 2 types: low-cost and full, and the differences boil down to the level of advice you want from the SIPP provider.
Low-cost SIPPs are cheaper (some may be opened for a sum of around £5,000) because the provider will not give you investment advice.
Opening a full SIPP will allow you to benefit from a team of experts who will assist you with your investment decisions. For this reason, full SIPPs will charge higher rates.
You should always seek professional advice before making any decisions that may affect your retirement income.
SIPPs in particular carry a high level of risk due to the amount of knowledge and expertise they demand of you.