Why a SIPP is the smartest way to save for retirement

John Fitzsimons
by Lovemoney Staff John Fitzsimons on 15 May 2012  |  Comments 2 comments

Guest blogger Stewart Dick of Hornbuckle Mitchell looks at how to get the most out of a SIPP.

Why a SIPP is the smartest way to save for retirement

Self Invested Personal Pensions (SIPPs) are undoubtedly the investment of choice at the moment. As the economic malaise wreaks havoc, more and more pension investors have, quite rightly, been driven to taking matters into their own hands.

The attraction of a SIPP is that they give access to a huge range of funds and investments, and it's down to the individual investor to decide where their money goes. So not only are you able to pick and choose the best fund managers rather than be confined to poorly performing funds run by insurance companies, but you also enjoy greater flexibility to shape and mould your pension pot in accordance with your changing needs over time.

Ditch the one-size-fits-all approach

It's a bit like picking a suit. Rather than a one-size-fits-all, off the hanger suit, you can build your own, made-to-measure.

This flexibility isn't only offered during your saving years - the accumulation phase - either. You also enjoy more choices once you retire, as you have the option of capped drawdown or flexible drawdown pension schemes. For more on the difference, read this article.

As such, a SIPP has been specifically designed for the individual investor and under their guidance may well leave them better off than the alternatives. In my opinion that makes them the perfect pension vehicle for life.

An option for all budgets

SIPPs were once considered the exclusive preserve of wealthier individuals. But the market has evolved dramatically over recent years and today’s investor now has the option of everything from a lower charge, execution-only SIPP all the way up to a full SIPP.

This range of SIPP models means you get differing levels of access to the various assets on offer. So you need to work out for yourself what type of portfolio suits your circumstances, goals and appetite for risk.

For those with a desire to invest in just funds or shares, an execution-only SIPP can prove an effective approach, albeit somewhat limiting.

At the other end of the scale sits the full SIPP, its beauty being that it strays away from the vanilla investments to the more esoteric.

A full range of investments

With a full SIPP, the SIPP administrator merely provides the SIPP wrapper, leaving it up to the investor to choose from the full range of investments permitted by HMRC.

From tapping into commercial property, direct securities, gold bullion and unlisted shares to dabbling in collective funds and even buying a domain name, there’s not much that a full SIPP won’t allow.   

Commercial property has certainly proved a hit; a typical investment in commercial property can be one’s own business premises, offering the SIPP holder a capital gain in the property’s value as well as untaxed rental payments.

It is even possible to use a mortgage to buy property within your SIPP, once again adding to its flexibility and potentially boosting returns.

Property purchases aside, there are plenty of other daring investments that appeal to more exotic tastes, such as unregulated collective investment schemes that invest in areas including forest plantation and film production.

Getting advice

But whatever SIPP an investor plumps for, one rule applies across the board: seek professional advice.

An adviser is there to help make the right decision and pick a good SIPP provider, as well as assist with the more daring investments.

Stuart Dick is head of sales at Hornbuckle Mitchell.

What do you think? Are you saving for your retirement in a SIPP? Or are you happier going with a traditional pension? What would you invest in with a SIPP? Let us know your thoughts via the comment box below.

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Comments (2)

  • AdAstra100
    Love rating 27
    AdAstra100 said

    I think its more a question of whether you want/can get tax relief on the pension contribution or on the downstream income. I am feeling mighty pleased that with the recent very significant reductions in the 40% tax threshold that I opted for ISAs and not AVCs to supplement my company pension. I dont have the worries of drawdown constraints or being obliged to buy an annuity at 75. Only now am I taking advantage of the SIPP in order to mitigate the problem of higher rate taxation on a pension income equivalent to a pension pot of around £800K - which is not a huge amount after a lifetime of pension savings and certainly not exceptional for many similar PAYE tax payers.

    Report on 16 May 2012  |  Love thisLove  0 loves
  • Dividend Income Investor.com
    Love rating 0
    Dividend Income Investor.com said

    While indeed, I have a SIPP and so have all my immediate family members, we also have stocks and share ISAs which I rather prefer due to the freedom it provide me and my family to take out all the income tax free without any interference from government (according to current tax rules and regs!) whenever we need to, including once I/they retire.

    Report on 13 December 2012  |  Love thisLove  0 loves

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