A SIPP is a very flexible form of personal pension scheme, which separates the administration of the funds from the investment.
SIPPs give investors control over their funds and enables them to invest in a range of investments with a variety of different managers.
Permitted investments include stocks and shares quoted on the London stock market or a recognised overseas stock exchange, unit and investment trusts, insurance company managed funds and unit-linked funds, deposit accounts and even commercial property.
Phased retirement and income drawdown schemes can also be operated via a SIPP. A SIPP has a major advantage over an ordinary personal pension scheme where income drawdown is used since Inland Revenue regulations will not allow a swap of fund managers after drawdown with a conventional personal pension.
By contrast, funds in a SIPP can be moved around regardless of drawdown. Subject only to handling fees, investments can also be moved around within a SIPP without incurring the penalties which are often associated with transferring funds from one standard personal pension plan to another.
The charging structure means that a SIPP is an expensive product if a contributor only puts small amounts into it. There is usually a set-up charge which can vary from £250 to £800 and an annual charge, usually fixed, which can typically vary from £225 up to £750. In addition to this, each transaction will generate a charge which tends to vary between £15 and £30.
Hybrid schemes are also available from major insurers. Here an investor usually makes minimum contributions to the insurance company in-house pension scheme and can then have access to a SIPP, with the SIPP element usually administered by a specialist fund pension manager.
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