The general consensus is that it is never too early to start saving for retirement, but with so much choice facing those planning for their golden years, it is not surprising that many put it off until the last minute.
A Self-Invested Personal Pension (SIPP) is a tax-efficient wrapper that enables investors to make their own investment decisions within their pension fund, from a wide range of approved investments, including stocks and shares, unit trusts, investment trusts, managed funds and property.
The popularity of SIPPs has soared since reforms were introduced in April 2006 that increased how much you can pay into your SIPP and allowed more freedom over where it can be invested and how benefits are paid on retirement and death.
Think before you act
But before you rush out and buy a SIPP, it is worth doing a bit of research, as Brian Potter, a financial adviser and stockbroker with Edward Jones, points out. ‘There’s far more to investing for retirement than simply putting money into a plan every year.
‘Making the most of retirement savings requires clearly defined objectives and a solid investment strategy based on specific long-term goals. This involves determining the amount of annual income required in retirement and the amount of wealth that must be accumulated to generate that level of income.’
When it comes to researching and planning your SIPP, it is important that you understand the range of options available. ‘The first question you need to ask yourself is what type of investor you are,’ says Tom McPhail, head of pensions research at Hargreaves Lansdown. ‘Are you looking for a fund supermarket, regular equity trading, or commercial property. There is a range of SIPPs available, each suited to different types of investor.’
More choice, higher cost
The thing to bear in mind is, the more there is to choose from, the higher the cost of the product. So, at the lower end of the market, you might find that SIPPs only offer access to an enhanced range of funds and stocks and shares on top of what is offered by a personal pension.
McPhail explains, ‘Hargreaves Lansdown’s own SIPP, for example, is ideal for investors who want to focus mainly on unit trusts and OEICs, cash and perhaps the odd equity trade. Alliance Trust, on the other hand, is suitable for investors who anticipate making heavy volumes of equity transactions and Suffolk Life are particularly good for direct commercial property investment.’
For those SIPPs that allow you to invest in anything and everything, from funds to traded options, you can expect a hefty price tag. David Seaton, director at Rowanmoor Pensions, says, ‘The normal charge to set up a SIPP is around £400 and it can cost anything from £500 to £1,000 per year to run. For example, if you have commercial property in your SIPP then it is likely to be more expensive.’
At the other end of the spectrum, there are some SIPP providers that don’t charge set-up or annual management fees at all, but instead ...
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