How safe is a SIPP?

The SIPP is 100% safe wrt the "ownership" of the funds. It is however not guaranteed to give to a positive return and may return a negative amount, especially after management fees which can be significant for small amounts. Small in SIPP terms is perhaps less than 50-100K.

tim

thank you, yes, the typically fixed annual fee means that these things are only sensible if the fund is reasonably large. they don't guard against poor investment decisions either, as you point out.

Robert

You appear to be specifying a SIPP as the only option. What about an ordinary personal pension? The pension plan is basically safe even if the provider went under (the provider does not actually 'own' the pension), but the funds themselves have a riosk element that depends on which funds they are. If you wanted low or no risk then you could choose a cash fund (but the returns would likely be abysmal).

Plus the charges are likely to be less than with a SIPP.

Rob Graham

Go for one without a fixed annual management fee, eg Hargreaves Landsdown. I think others like sippdeal have reasonable charges too.

My wife has a SIPP with HL - about 10k in it. The charges are insignificant (in fact there are no charges at the moment other than the annual charge on the underlying funds).

Just checking I understand - the ownership of the funds is with the person rather than the SIPP admin company. So it the admin company goes broke then the SIPP (funds?) still exists and belongs to the person - I presume its just transferred to another admin company?

However if the places that the SIPP is invested in - say the whole lot is in a cash fund - go broke then the usual rules apply - e.g. bank deposit guarantee? Have I got it? mikej

yep, that's how it works

tim

Good. i wasn't concerned about the health underlying investments but rather about the SIPP wrapper provider. The other question I need to sort out (by reading further) is what happens if the SIPPer dies. I know there is a possible large tax charge under some circumstances.

Robert

If you haven't vested and are within the lifetime limit (which is very large) then it goes 100% tax free into the estate AIUI.

yes, although i think technically it is passed at the trustees discretion (usually in accordance with your expressed wishes ), so it's not actually part of your estate and does not pass via the will or attract IHT.

But if you die after putting it in "income drawdown" mode (but before buying an annuity) the fund attracts 35% tax if it transferred as a lump sum in this way. However the spouse and dependants can continue use the fund drawdown mode, so probably it's nothing to be frightened of. It also seems that SIPPs are typically split into little subSIPPs so that you can vest it bit by bit into drawdown mode.

Robert

Self-Invested Personal Pensions (SIPPs) are subject to the normal rules and regulations for registered pension schemes, but offer the freedom of choice over investment management, whilst keeping the administration in one place. This means you can change your investment manager who looks after your fund when you wish, without incurring the expense of changing the administrator who looks after the day-to-day running of your pension scheme.

Additionally, you can achieve greater flexibility in the benefits you can take during retirement. You can elect to purchase an annuity or follow the route of phased retirement which allows you to drawdown income in stages rather than all at once. You can also opt for an unsecured pension, which is an alternative way of taking an income as opposed to going down the traditional annuity route.

The benefits of a SIPP

Due to the investment flexibility of a SIPP, you wont have to change your contract if you want to switch investments e.g. increasing or decreasing your funds to a higher or lower risk. In terms of tax benefits, investment limits and retirement options, a SIPP works exactly the same as any other personal or stakeholder pension.

Traditional pension plans tend to offer a narrow choice of funds managed only by the pension provider and no option is given to use funds managed by other fund managers. They can also carry hefty charges, particularly on older plans. One possible drawback of using a single fund manager is while they may have expertise in one particular area, they are unlikely to have the best record across all fund sectors. One fund manager may offer a good Property fund, while another may be renowned for its expertise in picking US shares.

Newer styles of pension plans run by insurance companies now tend to offer a limited selection of funds from other fund managers, plus their own in-house funds.

SIPPs offer the widest possible choice of investments for individual pension plans, allowing holders to pick funds from across the market.

A SIPP can hold all the asset classes required to give you the chance to build a diverse investment portfolio that has just the right level of risk you are happy being exposed to. SIPPs are now a real option to cost effective personal pension planning.