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About SIPPs

What is a Sipp?

The clue is the name - self-invested personal pensions.

A SIPP allows you to make your own investment decisions giving your greater control and investment flexibility. In this sense they are DIY pension plans.

However, most people who set up a SIPP don’t actually take use the do-it-yourself option but invest in range of pension funds or portfolios in the same they would in a personal pension.

This means that in many cases ‘personal pensions’ and “self-invested personal pension” are effectively the same. However, there are some important differences:

  • SIPPs allow you to trade in shares and bonds as well as commercial property
  • SIPPs will normally have many more investment funds to choose from
  • Personal pensions may not have the full range of flexible options such as pension drawdown
  • SIPPs may have higher charges
  • It may be possible for SIPPs to borrow money e.g. to help purchase a commercial property

Types of SIPP

There are basically three types of SIPPs

  • Full SIPP – these allow investments in the full range of investments including commercial property and allow for the appoint of a discretionary fund manager (DFM)
  • Low-cost SIPP – normally online pension platforms with wide range of funds
  • Insurance company SIPPs – many of the leading pension providers have their own SIPPs with funds from other investment companies

SIPP investment options

SIPPs can invest in a wide variety of assets, from stocks and shares to cash to property. The types of permitted investments include:

  • Quoted UK and overseas stocks and shares
  • UK government bonds (gilts) and bonds issued by foreign governments
  • Collective investments (such as OEICs and unit trusts)
  • Investment trusts listed on any stock exchange
  • Exchange traded funds (ETFs)
  • Bank deposit accounts including non-Sterling accounts
  • Commercial property
  • Real estate investment trusts listed on any stock exchange

SIPPs can also borrow money to purchase some investments. For example, a SIPP can raise a mortgage to part-fund the purchase of a property. Such properties would normally then be rented out and the rental income, received by the SIPP, can be used towards servicing the mortgage repayments and the costs of running.

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