Could a self-invested personal pension (SIPP) be right for you?

Sep 17, 2018 10:27:00 AM

A self-invested personal pension (or a SIPP for ease) is a scheme that takes full advantage of the new pension freedoms in the UK. It’s a scheme that provides flexibility in regards to what you can do with your investments, and as such, is a great option for those who don’t want to succumb to the rigidity of traditional scenes that limit you to buying a fixed income with your pension pot.

Despite being a UK scheme, a SIPP can be beneficial even if you live outside of the UK, as it has the potential to allow you to choose investment products in the currency used in your new country of residence. First and foremost, this means you are protected from the risks associated with the currency market and won’t miss out if the value of your currency drops.

If you have any of the following investments, then a SIPP could be for you:

  • Managed investment funds as unit trusts, OEICs and investment trusts
  • Individual company shares and bonds
  • Government bonds
  • Cash
  • Commercial property
  • Traded endowment policies
  • National savings and investment products
  • Bank and building societies deposit accounts

Furthermore, if you’re looking to invest directly into stocks and shares, SIPPs are one of the few types of personal pensions that allow you to do this, often with lower chargers than other personal pensions.

If you’re someone that has pensions sitting with a number of past employers, a SIPP will give you the opportunity to consolidate all of those pensions into one place, making them easier to manage, and will facilitate the flexibility that comes with having a SIPP. They can often be easily managed online, allowing you to buy and sell your investments at the click of a button.

Retiring outside of the UK is a dream for many Brits, but paying taxes on your pension can be a frustrating by-product of making that move. With SIPPs, it is not necessary to pay UK income tax on your benefits, you’ll only need to pay taxes in your country of residence.

Of course, even if all of the above applies for you, there are other schemes that may offer similar services, and it is important to consider all the factors before making a decision on which scheme is best for you. If you are to go down the SIPPs route, it’s important to seek guidance, as with the increased flexibility, it can be easy to make wrong choices in regards to your investments.

If you’re living overseas, a strong alternative to SIPPs is a QROPS - a similar transfer scheme that offers a similar level of flexibility. However, QROPS are only offered in certain countries, and is only available if you’ve been living in those eligible countries for at least five full tax years. In these instances, a SIPP is a suitable and equally as effective substitute to a QROPS.

As with any investment, though - along with the unquestionable benefits - there are certain risks associated with having a SIPP that should be highlighted. Handling money requires a certain level of understanding of financial services that takes years to acquire, and without guidance, it can be hard to keep on top of the constantly changing market conditions. Of course, there’s an obvious solution to this risk, which is to hire help to manage your investments and ensure that you are maximising the potential of your self-invested pension.

Summary

As discussed, there are a huge number of benefits to investing in a SIPPs scheme but no investment scheme will likely ever be perfect. It’s up to you and your advisor to decide whether or not the benefits outweigh the potential risks. If you feel as though a SIPP could be an option for you, don’t hesitate to get in touch with the Belgravia Wealth Management team, and we’ll talk you through the best course of action for your personal circumstances.

Ian Crompton

Written by Ian Crompton

Ian is Director at Belgravia Wealth Management. He has more than 20 years experience of working in finance and holds an International Certificate in Wealth Management.