Greg Kingston, group communications director at Curtis Banks, looks at the different types of SIPP and the tactical and tax advantages of each.
Today self invested personal pensions (SIPPs) are more popular than ever. Helped by the introduction of pension freedoms in 2015, SIPPs are favoured as a way of allowing individuals to have greater access, control and responsibility over their pension savings. They are now being considered by a much larger group of consumers than ever before and are no longer perceived as reserved solely for those with large pension fund values.
There are many benefits attached to SIPPs, tax relief being one of them with money going into a SIPP receiving up to 45% tax relief, as is the case with all pensions, making them a very efficient tax wrapper for retirement savings.
There are a number of different SIPP options available and it is important to understand the differences between them in order to make an informed decision about which one will suit them best. Here we aim to break down the options available within each SIPP.
Full SIPP
These SIPPs are what some might call a ‘traditional’ SIPP and would either think of commercial property, or clients who desire a complex mix of unusual investments and portfolios. Or both. These are the fully bespoke products which aim to allow as much flexibility as is allowed within the pension rules. There is certainly still a strong market for these types of SIPPs among clients who require these bespoke solutions and less common investments.
The takeaway to remember for full SIPPs is they offer the client the widest choice. They can be linked to a variety of investment partners and investment firms, with a full range of complementary investment options.
With a full SIPP, a client can invest in multiple ways at once, for example, place money with a discretionary fund manager (DFM), invest in a commercial property and hold a stockbroking account to make investments themselves.
Mid SIPP
These SIPPs are a sort of middle ground in the SIPP market. These products may not offer clients the full range of investment options found in many bespoke SIPPs, but still have flexibility built into their core. For example, these products may offer clients access to a range of discretionary accounts, with options to hold multiple accounts or switch between them without the upheaval of needing to transfer to a new product. In this way, future-proofing the pension ready for a client’s changing requirements becomes a form of flexibility in itself.
Mid SIPPs are linked to one or more specific investment partners with whom there is a high level of integration. This means they allow a high degree of automation in recording investment transactions and reconciling accounts. In some instances, deposit accounts can be held outside the chosen investment partner, acknowledging that clients sometimes need to hold cash short term and want to get the best rate that they can for it.
eSIPP
These SIPPs are a more streamlined pension product and are the types of product which, in its Retirement Outcomes Review, the Financial Conduct Authority (FCA) termed ‘mass market SIPPs’. They sit at the other end of the scale to full SIPPs. eSIPPs have grown in popularity enormously since the introduction of the pension freedoms; they tend to offer much less in the way of investment flexibility, have lower average fund values than other SIPPs, and appeal primarily to those looking to access the pension freedoms. It’s probably fair to wonder if some of these products would have been marketed as SIPPs at all before the pension freedoms, when SIPPs became widely known as a type of pension which would allow you to make use of the new rules. These SIPPs are linked to a single specific investment platform, with no additional investments outside those held by the platform.
Why choose a SIPP?
The wide investment choice in SIPPs can make a significant difference to a pension whereas lots of pensions have a small range of options. How investments perform can have a large impact on the size of a pension pot and eventually quality of life in retirement. Having a SIPP lets investors save for retirement on their own terms – giving them more investment freedom and flexibility. The different types of SIPP available also mean investors can choose a product that suits their needs, whilst also having all investments in one place, making it easier for investors to see what is happening with their money.
