Deciding Between SIPPs

Picking & Using a SIPP

A self-invested personal pension (SIPP) is a do-it-yourself pension wrapper that holds investments until you retire and start to draw retirement income. It is an excellent way to fund retirement because of the tax relief on offer, with the government topping up contributions and investments allowed to grow free of income and capital gains tax.

When it comes to picking investments to go in a SIPP there are no set rules, and decisions will ultimately depend on personal circumstance, but there are some general guidelines that are often used to indicate whether the level of risk is appropriate.

For the average person, a good indication of whether the level of risk in their SIPP is appropriate, is to take their current age and see if it approximates to the percentage of investments in non-risk assets, such as cash or short-term government bonds. The remaining percentage (i.e. 100 minus age) is invested in risk-assets, such as an shares index fund. These percentages can be adjusted if, for example, an individual knows they have a large cash requirement at the early stages of retirement, they may choose to hold a higher percentage in non-risk assets, to reduce the impact of being forced to cash out when the stock market is in a lull. Equally if someone is lucky enough to have a pension that dwarfs any expected retirement income requirement, they might want to take a longer-term view (perhaps focusing on providing inheritance income) and choose to invest a higher percentage into riskier assets.

The SIPPs listed on our comparison page are execution-only, the providers follow your instructions rather than advising you, and so you need to feel comfortable managing your own portfolio of investments. Some other platforms provide ready-made portfolios to simplify the investment decisions, though these come with significantly higher charges.

Some points to be aware of with SIPPs:

• While you can save as much as you like towards your retirement, there are limits to the amount you can save into a SIPP and still get tax relief. Please refer to the Personal Pension section of the Government's advice website for the latest rules.
• Since April 2015 you can drawdown money from your pension from age 55 when you want, and how you want although after the 25% tax-free element the remainder of the pension pot is subject to the normal tax rules as if it were income.
• If you die before taking all of the money out of your pension, the remaining balance will be passed on tax-free to any beneficiaries albeit with some caveats. Again please refer to the Government's advice website for the latest information on the inheritance rules for pensions.