Use our comparison tables to compare SIPP (self-invested personal pension) accounts in the UK.
Compare key features like research, added value, IPO and placing access, commission and costs or read our guide to SIPPs here.
|Featured Broker||What can you invest in your SIPP?||How much does the SIPP cost?||More Info|
|With an IG SIPP you can invest in thousands of UK and global shares and ETFs through a share dealing SIPP, or get a managed portfolio based on your risk profile with a Smart Portfolio SIPP.||£205 annual admin fee. £24 quarterly custody fee for share dealing investments. UK share dealing costs £3 if you made 3+ trades the previous month or £8 if you made 0-2 trades. Fees for US share dealing are £0 and £10, respectively.|| Visit IG |
Your capital is at risk
|The Hargreaves Lansdown SIPP allows you to invest in UK and overseas shares, bonds, investment trusts, ETFs and 2,500+ funds; or select a ready-made portfolio.||Share custody fee: 0.45% (max £200 a year). Fund custody fee: 0.45% on the first £250k; 0.25% on £250k-£1m; 0.1% on £1m-£2m; free above £2m. Yearly charge for holding investments is never more than 0.45%. Share dealing: £11.95 per deal for 0-9 deals made in previous month; £8.95 for 10-19 deals; £5.95 for 20+ deals. Regular investing: £1.50 per deal. Buying and selling funds is free.|| Visit HL |
|More than 40,000 UK and global stocks, 3,000+ funds, investment trusts, ETFs and bonds.||£10 monthly admin fee, £9.99 monthly service fee, £7.99 UK dealing fee. Free regular investing. Free trading credit of £7.99 per month. Open a SIPP by 30 April 2020 and pay no admin fee until April 2021.||II Reviews|
|One of three ETF-based portfolios: Socially Responsible, Fully Managed or Fixed Allocation.||Socially Responsible and Fully Managed portfolio fees are 0.75% on the first £100k and 0.35% beyond £100k. Fixed Allocation fees are 0.45% on the first £100k and 0.25% beyond £100k. Average fund costs: 0.32% Socially Responsible; 0.19% Fully Managed; 0.17% Fixed Allocation. Average cost of market spread is 0.06%.|| Visit Nutmeg |
|UK and international shares, 2,000+ funds, 450+ investment trusts, ETFs, bonds, warrants and exchange traded commodities.||Annual shares custody charge: 0.25% (max £25 per quarter). Annual funds custody charge: 0.25% on the first £250k of funds; 0.1% on £250k-£1m; 0.05% on £1m-£2m; free above £2m. Dealing fees: £1.50 for funds and £9.95 for shares (or £4.95 if there were 10+ deals the previous month). Regular investing: £1.50 per deal.||AJ Bell Reviews|
|UK shares, 2,500+ funds, ETFs and investment trusts, or choose a ready-made portfolio.||£100 + VAT annual admin fee. Service fee: 0.3% for a pension value of up to £250k; 0.2% between £250k and £1m; free above £1m. Share dealing costs £7.50 per transaction. Buying and selling funds is free.||Bestinvest Reviews|
|Over 3,500 funds, investment trusts and ETFs.||Annual fee of 0.25%, which reduces to 0.2% if the total value of your FundSupermarket accounts exceeds £200k. Investment trust and ETF dealing costs £3 per deal. Buying and selling funds is free.||Cavendish Reviews|
|Over 3,000 funds, UK and overseas shares, gilts, bonds, ETFs and investment trusts.||£100 + VAT annual admin fee (waived if assets exceed £30,000). Platform charge for holding shares is 0.35% (min £24, max £240 per year). Platform charges for funds: 0.35% on the first £250k; 0.2% on £250k-£500k; 0.15% on £500k-£1m; 0.05% on £1m-£2m; free above £2m. Share dealing: £11.50 per trade. Fund trading is free.||Charles Stanley Reviews|
|Over 3,000 funds, UK shares, investment trusts and ETFs, or choose a risk-based actively-managed multi-asset fund with PathFinder.||Service fee: 0.35% for accounts worth up to £250k, or £45 p.a. if investments are under £7,500 and you don’t have a regular savings plan; 0.2% for accounts between £250k and £1m; for accounts over £1m, it's 0.2% on the first £1m and free thereafter. ETF portion of the fee is capped at £45. Share dealing: £10 per deal or £1.50 if you have a regular savings plan.||Fidelity Reviews|
|UK and global shares, funds, ETFs, investment trusts, bonds and gilts.||Quarterly account charge: £22.50 for SIPPs worth £50,000 or less; £45 for SIPPs worth more than £50,000. Dealing fee for shares and funds: £12.50 per trade or £2 via the scheduled investment service.||Halifax Reviews|
|Sipp Services and Costs Sipp Services and Costs 100% Stocks, funds, bonds, gilts and investment trusts on seven world markets. Screen reader support enabled. Stocks, funds, bonds, gilts and investment trusts on seven world markets.||Quarterly admin charge: £22.50 for SIPPs worth £50,000 or less; £45 for SIPPs worth over £50,000. Dealing shares and funds costs £5 per trade.||iWeb Reviews|
Selftrade (now EQi)
|Shares, investment trusts, bonds, gilts, exchange traded products and funds.||£118.80 annual admin fee, £17.49 quarterly custody fee (can be offset by investment fees). Funds platform fee: 0.3% for fund value up to £50k; 0.25% on £50k-£250k; 0.15% on £250k and above (max £250 per quarter). Dealing fee: £10.99 per deal or £9.99 for ETFs; £5.99 if you made 20+ trades the previous month. Trading funds is free. Regular investment: £1.50 per trade.||EQi Reviews|
The Share Centre
|Currently closed to new applications until a new pension trustee is appointed. UK and overseas shares, investment trusts, funds, fixed interest securities, bonds, exchange traded funds and commodities, depositary interests, real estate investment trusts and insurance company funds.||Standard dealing option (deal less than £750 or occasionally): £15 monthly admin fee, £7.50 dealing fee for trades less than £750 or 1% for £750+. Frequent dealing option (deal more than £750 frequently or have a lump sum): £15 monthly admin fee, £24 quarterly dealing option fee, £7.50 dealing fee. Regular investing: 0.5% (min £1).||The Share Centre Reviews|
|Over 2,000 funds, ETFs, investment trusts and shares.||Quarterly admin fee of £31.25 + VAT; monthly customer fee of 0.2% p.a. for funds and 0.1% p.a. for other investments (min £4, max £125 per month). Buying and selling funds £3 per deal; other investments £6 per deal. Regular investing: £1 per deal.||Barclays Reviews|
|A portfolio of ETFs based on your risk profile (balanced, growth or conservative) and spread across UK and global equities and bonds.||Basic account (deposit £0-£100k) 0.7% fee; Black account (deposit £100k-plus) 0.5% fee. Fund fees average 0.2%.||Wealthsimple Reviews|
|One of seven actively managed risk-based portfolios, predominantly consisting of equity and bond ETFs spread across different geographies and currencies.||0.75% p.a. on the first £10,000; 0.5% p.a. on £10k-£50k; 0.5% p.a. on £50k-£100k; 0.35% p.a. on anything over £100k. Fund fees average 0.2%. Effect of market spread per year is up to 0.09%.||Moneyfarm Reviews|
|Over 75 funds and ETFs, or choose a ready-made Target Retirement fund.||Annual account fee of 0.15%, capped at £375 a year. Fund fees average 0.2%. Optional ETF quote and deal service: £7.50 per trade.||Vanguard Reviews|
|One of five ‘original’ plans or one of five ‘ethical’ plans based on your risk profile: cautious, tentative, confident, ambitious or adventurous. The plans invest in funds and ETFs comprising shares, bonds, property and commodities.||Annual fee of 0.6%. Fund charges and market spread average 0.22% for original plans for 0.66% for ethical plans.||Wealthify Reviews|
Legal and General
|One of five risk-based actively-managed funds spread across different assets, markets and industries.||0.25% annual service charge and 0.31% annual fund management charge.||Legal & General Reviews|
The Pros & Cons of SIPP Accounts Video Discussion
Good afternoon. Welcome to Good Money Guide TV. Today, we’re here with Rebecca O’Keeffe from Interactive Investor. We’re going to discuss SIPPs, the pros and cons of having a SIPP, what you can invest in them, and also, we’re going to touch briefly on how Interactive Investor addresses that market and the products they offer around SIPPs. So Rebecca, thank you very much for joining us. It’s nice to see you.
Do you just want to quickly explain to us and our viewers what a SIPP is?
So a SIPP stands for self-invested personal pension, which as the name suggests is basically a DIY pension. So it’s a do-it-yourself pension for those people who are confident enough to want to make their own investment decisions. You are the one that gets to choose very much what you put inside your SIPP and the value of your pension pot at the end of your working life and how much you’ve contributed and how well your investments have done determine how good or bad a retirement you’re actually going to have.
So would you say it’s a product for confident investors or should everybody be managing their own SIPP, do you think?
I think there is an element of me that says people need to be more engaged with their pensions. It’s quite easy to have a sort of hour-long conversation with an IFA way back when and get yourself stuck in the default pension fund, and all of a sudden, you have no idea what you’re invested in, what it’s worth, and 20 years down the line, it can be difficult to unravel the number of pensions that you have from your previous potential employers. So from that point of view, absolutely. I think basically, investors need to sort of wake up and potentially take more responsibility for their own retirement, and a SIPP is a really great place to start.
And in terms of what you can put in a SIPP, is it limited or are there a broad range of investments that you can put in them?
Well there are two types of SIPPs. So one is the low-cost option, and that basically allowed you to invest across the market. So anything that’s tradable. So what we’re talking about here is stocks, both UK and international, bonds, funds, investment trusts, exchange traded funds. So anything that you might want to potentially invest in can go in a low-cost SIP.
The alternative is a full SIPP and included in that, on top of all of the other investments, you can actually hold direct commercial property. So for the vast majority of people, they’re not likely to want to hold directly held commercial property in their SIPP, so a low-cost SIPP is probably your best option. For some who may have a commercial property associated with their business, a full-blown SIPP with probably higher charges may be the way to go. But for the majority of people, we are likely to find that a low-cost SIPP that you can get at most brokers like Interactive Investor and others is a reasonable starting point.
And let’s just quickly talk about the pros and of having a SIP. We have to look at these products in a balanced way. So do you just want to talk us through the major benefits of having a SIP?
Well I think before you even start looking at the SIPP benefits themselves, the benefits of pensions overall are where to begin the story, and the biggest benefit of all with a pension is the tax relief that you get. So if you’re a basic rate taxpayer, you are able to claim 20% tax relief. If you are a 40% taxpayer or a higher rate taxpayer, you are able to claim 40%. And an additional rate taxpayer gets to claim 45%, though there is a caveat with additional rate taxpayers in that the amount of tax relief they can claim reduces the more they earn. So that is a really good starting point. And let’s put it this way. So in order for you to end up with £100 in your pension point, you only actually need to contribute £60 from your take home pay as a higher rate taxpayer. But if you look at it on the other way and you said to yourself what sort of return would I need to achieve in order to turn £60 into £100, that’s actually a return of over 66%, which is just enormous. So that gives you an indication of how valuable tax relief on pensions really is. And that is far and away the most effective sort of benefit of any pension scheme.
Another benefit to look at is that pensions actually change your adjustable net earnings. So it’s a bit of a tax jargon speak but if you are on the cusp of say losing child benefit allowance because you’re a high earner, or even potentially if you’re earning over £100,000 losing your personal allowance, investing into a pension reduces your net earnings or your adjustable net earnings, so it could be a highly, highly effective tax strategy in order to invest in a pension at all.
And finally, I guess it used to be the case that when you were forced to buy an annuity, pensions were sort of deemed to be really unattractive, but the new pensions freedoms allow you to manage your pension how you’d like, all the way through your retirement. That has opened up people’s eyes to the benefits of pension investing. So that’s certainly a reasonable sort of pro or benefit from investing in a pension at all.
So in terms of SIPPs and the benefits of a SIPP, the sheer vast array of investments that you can choose is obviously the biggest single benefit. A lot of our customers, for example, want to invest in directly held shares, or they might prefer investment trusts to funds. Bear in mind that if you are investing in a pension, you tend to be restricted to a choice of about 100 investment funds, whereas actually, you may want to choose to invest in a very different way in your SIP. So having the luxury of being able to choose how and when you invest is always a good thing. Having more control, knowing what you’re invested in, knowing what your targets and benchmarks are – that’s where a SIPP stands out.
And of course, it’s enjoyable. Everybody wants to beat the market. I mean the market and investing and taking a global macro view on the investment landscape is, for many people, an enjoyable thing. So having that connection.
It is, absolutely. And I think that is part of it. I think previously, when your pension was sort of one or two steps removed, you didn’t actually associate it being your money and what impact it was going to have on your retirement, whereas a SIPP does definitely focus the mind in a lot of ways in terms of how and where you want to invest.
The flipside to that is of course that it is quite scary, and for some people, the idea of managing what would hopefully anyway become a reasonably large amount of money by the time you actually get to retire could be quite intimidating. So definitely, if it’s going to give you sleepless nights, you might want to think about it again.
It’s not for everyone, yeah.
In some ways, sort of, you can almost take too little risk rather than too much risk when it comes to investing. Certainly sitting in cash for the moment is not an attractive option in real terms with inflation. It’s outstripping the value that you’re getting on any cash return. You’re actually losing money in real terms.
Well you’re losing money on the basis that interest rates are lower than inflation, but you don’t have the investment risk. I mean we all know that investing is incredibly boring and if you just leave your money for 20 years, it’s going to grow. But in the short term, you do run a bit of investment risk as well.
Of course. And you can’t get away from that fact. The simple fact of the matter is that you have to take risk when you invest. And leaving it in cash is not a good long-term option. The latest Barclays Equity Gilt Study suggested that… so they’ve looked at the markets for over 100 years, and basically, on any timeframe, any five-year timeframe, stocks beat cash 76% of the time, and if you extended that investment horizon out to ten years, equity, stocks, shares beat cash 91% of the time. So the longer your time horizon, the better it is for you and the more likely you are to actually be able to beat an equivalent cash return, and hopefully, the better your retirement might be.
So let’s talk about the risks as well. You know, we touched briefly on the fact that it’s not for everybody and with all investing, there is risk. So what would you say the major downsides of managing a SIPP is?
The absolute downside with any investment strategy is the idea that you might not get back as much as you put in. They’re the standard risk warnings that you see and they’re there for a reason because it is important to note that it might not go the way you want. Fundamentally, you can help yourself out in a number of ways. So if you diversify your holdings, and again, probably a too often used word, but being invested in a single stock or a single fund or a single sector, or even a single geographic area isn’t necessarily going to deliver great returns.
Diversification is the most important thing.
Particularly with a long-term investment product; you should be split between bonds, equities, funds, everything, shouldn’t we?
Yeah, absolutely. There is no doubt that spreading your assets and being diversified is an important point, and that also potentially extends to geographic area as well. A lot of UK investors can have what’s known as a home bias. So you have a tendency to be invested more in the UK than you might otherwise want to be, and obviously, the best-performing market over the last sort of number of decades has been the US market.
Of course, yeah. You look at all the global funds; they’ve done incredibly well, haven’t they?
Absolutely. So from that point of view, choosing where you want to invest and making sure that you have exposure to a variety of different asset classes is a really good starting point. So that is your biggest risk.
I mean as I say, the second risk is that you simply either aren’t comfortable at the start or you become increasingly uncomfortable as your assets grow with managing your money yourself. And when you’re talking about potentially hundreds of thousands of pounds, which is what your pension could grow to, would hopefully grow to, then it’s more difficult. You know, if you start with £5,000, then it doesn’t seem like a huge deal. It obviously is a large amount of money to a lot of people, but you can manage that. But if you’re talking about investing a pension pot of 500,000, all of a sudden, the risks are so much higher. The stakes sort of really make it much more difficult. And even though you’ve got exactly the same ideas about what you want to do and the targets you’ve got, it is inherently more difficult when you’ve got a larger amount of money.
But then you don’t have to manage it forever, do you? I mean you can at some point move your SIPP into your wealth manager or your IFA, can’t you?
Yes. And I think that’s it. I think the biggest single thing is to start as early as you can, because the low lovely compound interest makes it essential to actually get going as soon as you can.
So the second thing is that SIPPs are also available as potential workplace pensions as well. It used to be that SIPPs were very much the preserve of the wealthy or sort of people who were much more sophisticated investors. That’s absolutely not the case anymore. SIPPs are simply a pension wrapper. You can decide what you want to put in it. So you have the option to talk to your employer about investing in a SIPP instead of maybe the workplace pension. But that is not in lieu of the workplace pension because obviously, the huge benefit that you get from being an employee is that your employer will make pension contributions as well. So don’t give up that.
And the important thing as well is if you’re making extra contributions into a SIPP, it’s not like an ISA, you can’t get the money back, can you, until you retire?
No. So another important point to note is the accessibility issue when it comes to pensions. It can actually give you enforced discipline because you know you can’t access your money, but at this current time, you can’t access your money until you’re 55. Those age limits are changing, so it changes to 57 by 2028 and it will then become ten years below state retirement age. So yes, it’s a long way away potentially, but it does mean that your money has a lot of time to work, hopefully, and as I say, the tax benefits tend to be a really good… it gives you a great starting point when you’re investing in a SIP.
One final point before we move on to Interactive Investors SIPP products, we had a reader ask a question the other day about exit fees. He had 800,000 in his SIPP and one of the things he was concerned about were exit fees from his provider. And he obviously wanted to move to a different one. Does Interactive Investor help out with exit fees and incentives for people who want to…?
We don’t charge exit fees, so as far as we’re concerned, you should be able to sort of like our product or go. That is effectively… you know, we don’t charge exit fees. And the industry is moving in that direction, slightly slower than we might like, but the good thing is that most people are coming round to the idea that you can’t create hostages for your own customers. You have to actually offer them the ability to leave if they want to leave.
And what about incentives for people who do have large exit fees to cover? Do you cover any of those on the way in if someone came to you and said look, I’ve got a million in my SIP; these guys are holding me to ransom for £200 per stock.
We tend not to cover exit fees per se but we do have SIPP transfer offers at times and we do have one running at the moment. So certainly, you know, in the first instance, if I was in that situation, I would ask my current broker what they were playing at, and whether they were aware of recent FCA rules and how this was going to be perceived. And then, if that didn’t work, I would certainly contact any new broker that you were hoping to move to and see if they could help out.
Excellent. Very helpful. So let’s move on to the Interactive Investor SIP. Let’s just quickly go through the main advantages of having a SIPP with Interactive Investor, and also, your Interactive Investor Super 60 offering as well.
So the II SIPP is a low-cost SIP. We don’t offer the option to hold directly held commercial property. So we offer the entire marketplace, so that is any UK or international stock you can think of, investment trust, funds, exchange traded funds, bonds. So basically, we are a whole market provider and our guys can invest as they like. When you become a customer of Interactive Investor, you choose from one of three trading plans, depending on what sort of customer you are; whether you’re a frequent trader or you prefer to trade funds, or you actively want to invest in shares. And on top of that, we then have a £10 per month SIPP administration fee. So Interactive Investor are a flat fee provider. Fundamentally, there are two types of provider in the marketplaces. One is flat fees and one is a percentage-based provider. So a flat fee provider, you know exactly what you’re going to pay, and it can be very good news if you actually have assets, because obviously, you are not sort of having to pay more the more that’s in your account.
The more money you have, the more it costs.
Exactly. Fundamentally, we believe that sort of profits that you make are profits that you should keep rather than us try and eat into any sort of profits.
What about advice? Does Interactive Investor offer advice?
No. We are an execution only customer service, so that means our customers choose how they want to invest and what they want to invest in. That’s not to say that we don’t provide a whole load of tools and content and resources and filters and rated lists and other information to help you make decisions, but fundamentally, the decision is absolutely the customer’s to make, because you’re the one that actually has to live with the investment choices.
And let’s talk about the II Super 60. Best buy lists have, for obvious reasons in recent times, got a bit of a bad rap with providers pushing customers towards preferred funds. So how does the Interactive Investor Super 60 differ from other best buy lists out there?
So we differ in two fundamental ways. We have the same sort of panel of experts who are looking at it. They’re independent; they actually choose to look at the whole of market and decide what is a good option for investors. So that means we effectively have done a lot of the heavy lifting for investors. But the two ways in which we differ are number one, there are no commercial biases or incentives. We are agnostic on price. That’s probably a bit jargony, but basically, it doesn’t matter to us whether you want to purchase funds or investment trusts or ETFs or shares, it costs exactly the same. So we are not pushing people towards one particular product or another. So our list actually contains investment trusts, it contains funds, and it contains ETFs, which makes us actually I think unique in the UK that we have all options, including passive options, on our rated list.
And the second way in which we are sort of different from other providers is that we absolutely guarantee that there are no commercial incentives or other sort of ways in which a customer might perceive that there are conflicts of interest, because that’s the big thing. You want to be sure when you’re buying something off a rated list that you are trusting the process, that you are trusting how people have selected the list, and that you are not being pushed into a particular product for a particular reason.
Exactly. If one fund’s paying you a 4% commission and one fund, it’s obvious which one you’re going to recommend.
Exactly. And it simply does not make sense. So yes, funds, sort of rated lists have got a very bad rap, to use your words, this year, but that is not to say that they aren’t necessarily a good possible starting point for investors.
No, I think it’s very important. And some investors don’t know where to start. And I think with all investing, all you can do is put ideas in front of people and they will either agree with them or disagree with them, and it’s their choice to go on to invest one way or another.
Absolutely. I mean when you look at the number, the sheer number of potential investment options there are, it makes huge sense to try and actually cut down the work that you have to do in order to try and get to a reasonable starting point. We are not sort of suggesting that there is only one fund that you can buy in the UK equity income sector. But there are probably a lot of funds that you don’t actually need to look at because they don’t or they haven’t performed over the long term, and they don’t have enough going for them to make them a good option or an attractive option.
And actually, all you need to do is look on Trustnet or Morning Star and you can filter these funds into the ones that have consistently performed and the ones that haven’t.
And that is exactly what investors should do. So what you’re trying to do is you’re trying to actually come up with your own personal investment objectives, where you want to invest, how you want to invest, and then once you’ve actually got that far, you should start looking at all the filters and the information that’s available. We are pretty transparent as an industry. That sounds very strange, I know, but there is an awful lot of information out there. Fact sheets that will give you everything that you need to know. The ability to compare different funds or trusts or ETFs or any investment that you might want to invest in. So if you have the wherewithal to do it then it’s a really good idea to look at the information that’s out there.
And if you’re an existing investor, it’s also a good idea to potentially traffic light your investments. You know, you should be paying attention to them, in an ideal world, at least once a quarter, but even if it’s your New Year’s resolution to do it, take a look at what you hold, look at how it’s performed over time. Is it one that you’re happy with, that you want to continue owning, in which case, it’s green, that’s great. Is it starting to look like the performance wasn’t as good as other options? Or is it some where the fund manager might’ve changed or there’s a different emphasis on the fund? That might be an amber light. And if you’ve given the fund or trust manager the benefit of the doubt and they haven’t actually sort of pulled their socks up, then that might be one to consider changing.
And of course, you have to look at the global macro situation as well. If a fund is geared towards investing in emerging markets and emerging markets haven’t had a particularly good year, then you have to also look at whether or not a particular section…
Absolutely. So in principle, you’re not necessarily going not be comparing an emerging market fund with the US ones, because that would not give you a fair comparison. But within the sectors that you own or if you want to own a particular European-style stock or fund, then that’s the comparison that you should be making.
Excellent. So final question on the SIPP market. Can you just talk about fees? What should people be mindful of when looking at the fees they’re going to be charged for having a SIPP account?
That’s a great question. So the first thing is, when you look at fees between different investment types, for example, do you want to own a passive fund or an active fund that’s really important because the impact of fees can’t be understated. The huge impact that a 1% fee has over the lifetime of 40 or 50 years of investment could make the different between cruises and caravans. But the other thing to note is that fees aren’t necessarily just about how much you’re paying for your underlying investment. They are of course relevant to your choice of provider as well. So again, you need to ask yourself the question whether your assets are sufficiently large for you to consider a flat fee provider or whether you are not happy enough paying the percentage fee. So that is again something that you need to be very mindful of because it’s really important to stress how vital fees are over the long term.
Okay, excellent. Rebecca, thank you very much. Thank you very much for watching this episode of Good Money Guide TV. We’ll be back with another asset class shortly. Thank you.
Our Guide To Self Invested Personal Pensions
Essentially, a SIPP is a pension plan where the investments are chosen by the pension holder, rather than by the provider. This gives the holder far more control over how their money is invested than is the case with a traditional pension.
What is a SIPP?
A Self-Invested Personal Pension (SIPP) is a privately funded way to save for retirement. Savers have control over how their money is managed and invested, and have complete oversight on costs and fees. The money is invested by a SIPP provider on the member’s behalf.
How does a SIPP work?
Self-invested means just that. Investors inform their SIPP provider which assets that want to invest in and how much they want to contribute. This differs from a standard personal pension which limits the savers’ choice of investments. SIPPs are an individual arrangement between the saver and the provider and, unless it is a group SIPP offered by an employer, it is separate from a workplace pension. There are two types of SIPP: the low cost, which offers simple asset classes and comes with no advice, and the full SIPP which provides the entire range of asset classes – including more complex ones – and usually comes with advice or guidance.
How SIPP accounts work
As with any other pension, tax is not charged on any income that is invested in a SIPP. A 40% or 20% tax payer can transfer 100% of their pre-tax income into a SIPP. This potentially makes SIPPs a tax efficient approach to investment. However, you will be restricted from withdrawing money invested via a SIPP until the age of 55.
A huge range of different types of investment can be included within a SIPP. The legislation that covers SIPPs allows any asset to be included, but a small number will be subject to tax penalties. These include residential property, moveable property under the value of £6,000 and exotic assets %28for example, classic cars and art%29. SIPP brokers will generally not offer this class of assets in their accounts.
How to get started with a SIPP investing
In order to set up a SIPP, it is necessary to start an account with a stock broker. Different SIPP brokers will have different schedules of charges for their services. In general, these divide into low cost SIPP accounts and full SIPP accounts. The difference between these is that low cost accounts only include charges for executing trades, whereas full SIPPs also engage the broker in an advisory capacity.
Selecting a SIPP account
- Things to avoid The charges involved in setting up and managing a SIPP can be quite steep. Make sure that you understand how much you will be charged to set up the account, the on-going annual charges, the charge per trade and the transfer out charge. If you select a SIPP broker with high charges for your planned investments, you could end up throwing away a significant amount of money.
- Things to look for Low cost SIPPs can be managed entirely online. Make sure that the SIPP platform provided by the broker has a user interface that you find intuitive. Also, low cost SIPPs typically have a more restricted range of investments than full SIPPs. Make sure that the account that you choose will actually allow you to make all of the investments that you can foresee, including in your SIPP.
Examples of SIPPs
The whole point of a SIPP is to allow individuals greater freedom over how they save for retirement. As a result, there are a huge number of different approaches to setting up a SIPP.
A less experienced or more passive investor could set up a SIPP with a monthly amount being invested into a selection of unit trusts in order to spread risk. By contrast, a more active investor could set up a SIPP with individually chosen stocks and shares in sectors that they fully understand.
Different investors can set up SIPPs according to their own expertise, which includes commercial property, gold bullion or contracts for difference.
How do you put money into a SIPP?
Paying into a SIPP is as simple as filling out a direct debit form along with the requisite forms from the SIPP provider. Employers can also contribute to your SIPP, but they will not be responsible for the administration. You can also transfer any existing pensions into the SIPP.
When can you withdraw money from a SIPP?
Under current law you must be aged 55 or over to withdraw money from a pension, except under very special circumstances such as ill health. From 2028 the age limit increases to 57 years.
Should I invest in a SIPP pension?
SIPPs require a certain amount of investment knowledge and time commitment. Investors must be willing to research the asset classes in which they invest and make important decisions about how to allocate their money, or they will need an adviser who can do so on their behalf. Markets can be volatile and making the wrong decision at the wrong time can wipe out a pension pot just as the saver reaches retirement. Savers must be sure they have the appropriate risk appetite and a full understanding of SIPPs before investing. If you already have a company pension, it may make more sense to increase contributions to that instead of setting up a SIPP. If you are a confident investor, who wants to take control of your retirement savings and consolidate other plans, a SIPP could be suitable.
What should I look for when choosing a SIPP?
Clearly charges are extremely important (see next section), since pots can be eroded quickly by excessive fees. However cheap does not mean good value, so the choice of SIPP should not be based on price alone. The range of funds and asset classes available are also critical. Investors need access to appropriate investment options that match their appetite for risk. While there is no guarantee any company will last the distance, it is worth looking for providers with a strong brand and reputation. In some cases, specialist SIPP providers may be the best choice. It is worth seeking advice before investing.
What are the major SIPP charges to look out for?
Value for money is more important than cost, but clearly excessive charges are a danger to savings. SIPP costs to look out for include:
- A set up charge. Not all providers impose this fee and the amount varies across the market.
- An admin fee is the annual charge to cover running the SIPP. Again this varies and investors should compare the market before investing.
- Dealing charges apply to the buying and selling of assets. The more active an investor you are, the higher these will be.
- Transfer charges may be applied if you want to bring in additional pension plans.
What investments can be held in a SIPP?
The range of investment options will vary across providers, but typically investors can choose from:
- Individual stocks – company shares registered on a stock exchange
- Bonds – loans made to companies or government
- Unit trusts – open-ended fund which pools investment with others
- Investment trusts – a closed ended investment vehicle where your money is pooled with other investors
- Exchange traded funds – These are basket of stocks that trade on an exchange.
- Deposit accounts with banks and building societies – these provide fixed returns on savings accounts
- Commercial property – investment in office buildings, shops and factories
How much can be paid into a SIPP each year?
You can pay 100% of your earnings into a pension in a year and – under current legislation - receive tax relief of up to 40% on the first £40,000 paid in (the annual allowance). For those earning more than £150,000, the annual allowance is reduced by £1 for every £2 earnt over the £150k threshold until the £10,000 limit is met. There is also a lifetime allowance for total pension savings above £103 million, after which contributions will be taxed at 25% (55% for lump sums).
Are SIPP account profits tax free?
Yes. SIPPs are free from capital gains tax and income tax, but investors pay stamp duty when they sell shares.
Who is responsible for my SIPP making money?
Usually SIPPs are execution only. This means that unless the investor sought independent financial advice when allocating their money, the risks lie solely with them. Certainly in the beginning, it can be sensible to invest via a unit or investment trust rather than buying shares directly since a professional asset manager will make the stock selection decisions on your behalf. The SIPP provider is responsible for administering the plan and ensuring your money ends up as intended.
Do I have to choose all the investments in my SIPP?
In an execution only SIPP, the provider will offer no advice on where to invest and savers might need support from an independent adviser. Full SIPPs may include some advice from the provider, while robo advice SIPPs will take all or some investment decisions on the investor’s behalf. There is no obligation to invest in all the asset classes on offer and it makes sense to choose those with which you are familiar.
How is my retirement income paid from a SIPP?
From age 55, you can withdraw 25% from the SIPP as a tax-free lump sum. The remaining pot can stay invested within the SIPP investment and you can take an income to suit you, or you can move to an alternative provider that offers flexible drawdown. Finally, you can buy an annuity which locks the money away and pays a guaranteed income for life.
Can you transfer money in from another SIPP or pension?
Most SIPPs will let you transfer pensions in. However not all plans let you take your money out and even if you can transfer, you will likely pay charges. The rules and fees will vary across providers. If you have a final salary (defined benefit) scheme with your employer with a pot of £30,000 or more, you will need the transfer approved by a regulated adviser.
Can a SIPP be inherited?
Yes. Pensions can also be passed on death free of inheritance tax. If you die before age 75 your beneficiaries do not pay any tax on the withdrawals and can take it all in a lump sum if they choose. If you die after age 75, withdrawals from the pension are charged at the recipient’s marginal tax rate.
Are SIPPs safe investment accounts?
SIPP providers are essentially just ferrying your money to external managers, banks and stock markets so if they go bust, your investment should be safe. However, any investment in the stock market is not protected and should there be a crash the money will be lost. Money invested with external fund managers is protected under the Financial Services Compensation Scheme up to £50,000 so if the provider goes bust, you will be compensated. Cash is covered up to £85,000. As with any investment, SIPPs involve risk and you should be fully aware of the downside before committing any money,
Why SIPPs are managed online
Pretty much all SIPPs are managed via the internet. This is in part thanks to the time of their conception, but also because of the amount of transfer activity that takes place. The interaction between countless savers and institutions means digital transactions are imperative to monitor what is going on and to execute deals as quickly as possible.
What are robo advice SIPPS from digital wealth managers?
It is early days for this market but robo advice SIPPs offer more support to savers. conducted exclusively online, these are called SIPPs, but they are more heavily managed by the providers than the traditional plans. Typically, robo advice SIPPS rebalance portfolios, make investment decisions and offer more advice, rather than leaving savers to their own devices. These may suit first time SIPP investors not yet ready to make investment decisions.
Best SIPP for beginners and smaller investors
- AJ Bell Youinvest SIPP
- Nutmeg (robo advice)
- BestInvest, The Best SIPP
Best SIPP for all rounders
- Hargreaves Lansdown, Vantage Sipp
- Charles Stanley Direct
- Alliance Trust Savings
Best SIPP for larger sums and experienced investors
- Interactive Investor, SIPP Investment Account
- Barnett Waddingham SIPP
- Curtis Banks, Your Future SIPP
Best low cost SIPPS
- Fidelity low cost SIPP
- AJ Bell Youinvest
- MoneyFarm Pension (robo advice)