Beginner's Guide To: Sipps & How To Build Yourself a Low-Cost Pension

Although pension providers are all around offering to take control over your pension income and manage it thus saving your time, if you are willing to, you can take control of your own retirement planning. A Sipp, stands for a Self Invested Personal Pension, allows you to personally manage the choice of investments. There is now a wide variety of Sipp plans on offer, with various payment schedules and levels of flexibility in terms of investments choices. So how do you choose between them? Making an informed choice will definitely ensure you gain.

What Is a Sipp?

Sipp is a do-it-yourself personal pension. Unlike standard pension providers which manage and therefore limit the choice of investments, Sipps allow you to choose yourself where you want your retirement savings to be invested. Sipps give you the opportunity to make the decisions, something that pension companies will not let you do.

You can hold a vast range of assets and investments in a Sipp – from futures and options, individual stocks and shares to commercial properties. Just like with any other form of pension plans, any income or growth in your Sipp is exempt from tax.

Possible Sipp Charges

• Set up: from zero up to £80 depending on the provider;

• Annual management: a yearly cost;

• Dealing: a fee paid every time you buy and sell an investment;

• Transfer: a fee paid when you money into a Sipp from another pension;

• Exit fees: there may be charges if you decide to transfer your Sipp elsewhere

How Much Does a Sipp cost?

Sipps have been around for more than 20 years now and are one of the financial services industry’s rare success stories. Their success in not only due to the level of flexibility and control they bring, but also because of their low costs. A Sipp can cost up to £800 to set up, however you may be able to shop around and find even cheaper deals as the market is getting more competitive than ever.

Types of SIPPs

There are two main types of SIPPs:

1. Low-cost SIPPs - some providers will let you start a SIPP with an amount as low as £5,000. It is however highly recommended that you have £50,000 starting fund or be able to fund your SIPP with several thousand pounds per year. You will not get any advice from the SIPP company with this option so your pension fund is in your own hands. You choose where and how to invest.

2. Full SIPPs - wide choice of investments with great support from the SIPP provider. 

The Best Sipp Provider

Hargreaves Lansdown, along with Fidelity, is one of the few providers that don't charge a set up fee. Between the two, in terms of costs however, Hargreaves Lansdown is a more desirable option as they won’t charge an annual management fee on the large number of investments.

Are Sipps Right For Me?

If you're simply going to spread your pension funds across a range of mutual funds, then probably you’d be better off with another pension solution. Sipps are for people who will take the time and effort to manage a comprehensive portfolio of investments.

 

The information on this page is designed to help you understand more and make more informed choices. We do not receive any commissions, instead we are funded from companies that we advertise on our website.

You may also want to read about: Pension Calculator