Is a SIPP worth it?

In this article, we take a look at what a Self Invested Personal Pension (SIPP) is, how it works and the reasons you may want to consider getting one. We also explain what you can invest in via a SIPP and the types of fees you can expect.

Are SIPPs worth it?

SIPPs (Self Invested Personal Pensions) are a popular alternative to traditional personal or stakeholder pensions. SIPPs offer a way of taking control of your retirement investment, and if invested wisely, could provide a much-improved standard of living in retirement. However, as with most investment decisions, you need to do your homework to decide whether a SIPP is the right choice for you. So, is a SIPP worth it?

What are SIPPs?

A SIPP is essentially a pension 'wrapper' where a number of underlying investments (often funds) are held until retirement, at which point an income or lump sum can be withdrawn. A SIPP works in a similar way to a personal pension with the main difference being the range and flexibility of investment choice.

SIPPs are designed for people who want to manage their own pension either themselves or through a financial adviser. Within a SIPP you have the ability to buy and switch between funds and other investments. Therefore, a SIPP is probably more suitable for someone who has or wishes to build a medium to large pension pot and has some understanding of investing. Historically, the rule of thumb was that it was only worth taking out a SIPP if you had at least £100,000 in your pension pot. That was because the higher charges applied to SIPPs would be punitive for sums of money smaller than that. However, increased competition among SIPP providers means that the cost of a typical SIPP has fallen significantly. So now someone with less than £50,000 in their pension might still want to consider using a SIPP.

 What can I invest in within a SIPP?

Within a SIPP, investments can typically be made in:

• UK Equities
• Investment Trusts
• Unit Trusts
• OEICS
• ETFs
• Commercial property
• Gilts and Bonds
• Cash

Some SIPP providers may offer a wider range of investment choices than others. As a bare minimum, a SIPP will offer a range of funds to invest in. Always check the range of investment choice before selecting a provider if it is important to you.

What are the costs of investing in a SIPP?

There are typically three types of costs involved in a SIPP investment.

• Administration Fee - typically an annual charge with possible additional charges for transferring in and out of your SIPP.
• Dealing Charges - these are the charges levied for dealing in funds and shares and vary from provider to provider. You need to ensure that you select a provider whose charging structure meets your requirements.
• Fund manager charges and other fees - fund managers also charge an annual fee. Some SIPP providers have negotiated a cheaper fee structure with some fund managers and have passed these reductions on to their investors. Some providers - such as Interactive Investor - offer a fixed fee model, charging a simple flat monthly fee of just £5.99 per month (up to £100,000). Always check the fund platform details for full information on the charging structure before you make your final choice.

Make sure you read my article - The best & cheapest SIPPs - low cost DIY pensions, This is a must-read for anybody considering taking out a SIPP.

Deciding if a SIPP is right for you

The best guide I've come across for helping you decide is this FREE SIPP guide. Once you've downloaded it flick to page 7 where it will help you decide whether you should use a SIPP rather than a personal pension or stakeholder pension.

Also ask yourself the following questions:

• Are you aware of the risks? - Investing in a SIPP is not without risk as any investment can go down as well as up
• Are you comfortable managing your own investments?
• Do you understand the charges involved?
• Do you understand your current pension details and benefits if you are considering transferring them?
• Are you aware of the pension rules and how they affect you?

Choosing the Right SIPP Provider for You

If you have decided that a SIPP aligns with your retirement goals and investment style, the next step is choosing the right provider. With numerous options available, focusing on a few key factors can help you narrow down the choices:

• Costs & Charges - Look beyond just the headline administration fees mentioned earlier. Understand the dealing charges for the types of investments you plan to make, any transfer-in/out fees, and foreign exchange fees if investing overseas.
• Investment Choice - While most SIPPs offer a wide range of investment options, check if the specific funds, shares, ETFs, or investment trusts you're interested in are available on the platform. Some providers offer wider access than others.
• Platform & Tools - Consider how easy the provider's website or app is to use. Do they offer helpful research tools, performance tracking, or educational resources that match your needs and experience level?
• Service & Support - Consider the level of customer support you may need. Check reviews or information on how responsive and helpful their service team is.

Finding the best SIPP provider involves balancing these factors based on your individual circumstances, the amount you wish to invest and how actively you plan to manage your portfolio. We cover this and more in our article - The Best & cheapest SIPPs - low cost DIY pensions.

Further reading

• How much do I need to retire early?
• SIPP vs Personal pension
• The Best & cheapest SIPPs - low cost DIY pensions
• Cheapest SIPP - the best value pension for you
• How to transfer your pension - everything you need to know

 

When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.