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Saving Towards a Pension
Other Types of Pensions

PENSION

Self-Invested Personal Pension

(Also called SIPP)

A means of saving towards a pension if you are self-employed or are an employee not in a job pension scheme. With a Self-Invested Personal Pension you have a wider choice of investments than available with an ordinary Personal Pension. In practice the benefit may be rather limited for many people.

For instance you can buy a property for your own business through the pension fund and then lease it back to the business. But if you already own the property, you cannot transfer it into the pension scheme. The rules are changing from 6 April 2006 and but this does NOT include allowing residential property to be held by the fund as originally announced except a part of a collective investment fund or a syndicate of 11 or more people.

Unlike most personal pension schemes, you can also hold individual stocks and shares in a Self-Invested Personal Pension. Some schemes have now been set up which work like on-line stockbroking sites so you can trade in stocks and shares yourself; such schemes don't allow you to invest in property.

Having a special fund of your own managed by experts sounds good but there is no reason why this should perform any better than a fund linked to a Unit Trust Invested in Shares which is also managed by experts or indeed an index tracker fund. The other investments allowed are the same as for a Personal Pension. For more advice on pension planning seeSaving Towards a Pension.

Who can invest The self-employed or employees not in a job pension scheme or who wish to leave a job pension. You can also transfer most other types of pension fund to a Self-Invested Personal Pension.

How worthwhile Compare with an ordinary Personal Pension. Self Invested schemes are more suited to transfers of large amounts of money because the schemes may have flat rate charges. With some schemes, so called hybrids the investor is persuaded to invest in a similar way to an ordinary Personal Pension with the option to invest more widely in the future; such a set-up seems pointless.

Minimum Probably £100,000 or more for a single transfer although many companies will take less. For schemes run as on-line trading, the minimum may be as little as £5,000.

Maximum From 6 April 2006 you can pay up to the full amount of your earnings to all your pension schemes. For the current contribution limits click here.

Suitable Lump sums. Regular savings.

Money back As a lump sum and pension starting between ages between 50 (55 if you were born after 5 April 1960) and 75 until you die (or with a guaranteed period of, say, 5-10 years). You are now able to cash part of the fund early, called drawdown, but this will be taxed as income. Widows pensions are available. If you die before you start the pension, the value of the fund or your contributions with interest, depending on the company, is returned.

Interest Variable. Income is accumulated.

Interest paid When policy matures mostly as a pension. See also Money back above.

Tax No tax on the lump sum nor on the interest or capital gain accumulated. Contributions get full tax relief. Basic rate taxpayers pay 22% tax on pensions in payment; higher rate taxpayers pay 40%.

Fees to pay Charges are deducted in different ways. For the self-invested portion, there is generally a fixed set-up fee of £225 to £375 and a yearly fee of £250 to £400. If any funds are invested in managed funds, e.g. Unit Trust Invested in Shares, then the underlying charges on these funds also apply. There are also transaction charges for buying and selling shares and units and depositing money, generally £25 each time.

Passbook Pension contract. Statements.

Children Not usually eligible.

Risk Depends on the investment to which the policy is linked. UK life companies have The Policyholders Protection Act which gives much better compensation than the The Investors Compensation Scheme if your investments significantly exceed £48,000. It could therefore better to have your money invested within a UK life company than through a trustee which is not a UK life company. These compensation schemes do not cover you for a fall in investment values but would cover fraud. The Financial Services Authority is proposing more regulation designed to protect investors, and has published details in a consultation paper.

How to invest Ask an independent financial adviser, preferably a fee based one. See magazine surveys, e.g. Money Management or Moneyfacts to find companies with low charges.

Where from At the present time there is no survey of terms and charges available on the Web. If you just want to invest in quoted securities (i.e. not property, consider one of the on-line schemes. A search on the web will revealthe names of the companies who offer these schemes.

Other Types of Pensions
Saving Towards a Pension
Unit Trusts
Investment Trusts

Last updated 23 June 2008.