SIPPs: What are they good for?

Wednesday, 27th April 2011 16:16 - by Resident IFA

The Self-Invested Personal Pension (SIPP)...the clue is in the title. In the past, Independent Financial Advisers (IFAs) have been accused of favouring SIPPs over ‘standard’ Personal Pensions due to the higher rates of commission they received for recommending them. I must admit they I have been reticent in recommending them to my Clients – unless they would really use them as intended, gaining the potential benefits of doing so. Thus, the majority of my Clients are sat quite happily in simple Personal Pensions. I say ‘quite happily’ as they do not have the requisite desire, goals, assets, or know-how to really use them to their full extent...or anywhere near. A SIPP has far greater scope in terms of the investments/assets a Client can place within their ‘walls’. Numbered amongst these are such as: o Stocks & Shares listed on a recognised exchange o Unlisted Shares o Validated Carbon Credits o Derivatives (I.e. CFDs) o Ground rents o Commercial Property o ...and the list goes on. SIPPs have recently become more competitive in terms of charges, yet you do not gain access to the above smorgasbord of investment options without paying for the privilege. So, I return to my initial standpoint – only the engaged, possibly more sophisticated, and possibly well-off Client will obtain enough benefit from the added investment flexibility within a SIPP to warrant the charges. The Pension product providers are now becoming wise to the fact that people might not need anything more than a selection of professionally-managed funds at outset, yet their requirements could change as their financial planning and lives move on. Hence, I see the increasing availability of a ‘Flexible’ Personal Pension – one that can morph into a fully-fledged SIPP at some point in the future. A case in point is two late-30’s/early-40’s Company Directors I met for the first time yesterday. Their business is doing well; whereby they may be able to fund to the point where their SIPPs can purchase Commercial Property outright – or borrow up to 50% of the Pension funds to aid purchase – in that timeframe. To this end, a SIPP is likely to be the correct recommendation, being utilised properly...not just sat there containing managed funds at a higher cost than for an equivalent Personal Pension. Not really a rant today, more my usual imploring to become engaged in your financial planning, understanding the products options you have and what the pro’s & con’s of each are. Until next time...