A Self-Invested Personal Pension (SIPP) is a tax-efficient wrapper – a particular type of pension – that sits around your retirement fund, allowing you to select from a wide range of investment choices. It gives you great control and flexibility over the investment decisions you make, allowing you to tailor your SIPP portfolio to match your requirements precisely, and readily move those investments around, depending on markets and your circumstances.
SIPPs can invest in a wide range of assets, including quoted UK and overseas shares, government securities, collective investment schemes (such as OEICs and unit trusts), investment trusts, insurance company funds, bank or building society deposit accounts, some National Savings & Investment (NS&I) products, and commercial property.
If you are employed, your employer can also pay into your SIPP to help boost its value. Contributions (subject to some annual and lifetime limits) receive income tax relief at your highest rate, and all investments are free of income or capital gains tax (CGT) whilst they remain within the plan.
However, although there are benefits for those who appreciate the flexibility, SIPPs are not for everyone. There are set-up charges, and annual management charges that need to be weighed up against the benefits. You will also need to consider whether you really require the full investment flexibility provided by a SIPP, or whether the increasing range of fund links offered by more conventional pension plans might actually be sufficient for your needs.