Caitlin Southall, senior marketing executive, Curtis Banks, looks at the range of investments offered through SIPPS and how this offers greater freedom and flexibility than other retirement saving wrappers.
While they are alike in many ways, the main difference between a SIPP and a traditional personal pension is a SIPP offers a much more extensive range of investment options, allowing greater freedom and flexibility for the client, as well as control over their investment portfolio.
Due to the current cost of living crisis, clients are likely to, and indeed should be taking this opportunity to re-evaluate their investment strategy and retirement goals. Have they got any funds readily available for drawdown, or are they tied up in less liquid investments, for example commercial property or fixed term deposits? Clients need to review and adjust their investment strategies regularly, especially in the face of challenging economic circumstances. These reviews should take place regardless of the stage of retirement planning that the client is in.
More and more advisers use investing platforms for their SIPP clients as they are simple to use, provide readily available reporting tools and provide an opportunity to invest in different investments all in one place.
Couple this flexible approach to accumulation within a tax advantageous environment, with the various options in terms of taking benefits, and it goes some way to demonstrating the real value that a SIPP can offer clients.
When looking at the investment options available within a SIPP, they are classified as either ‘standard’ or ‘non-standard’; this is to reflect the difference in the responsibilities that SIPP operators have when they hold the different classifications of investment.
Below are just some of the investment options that can be accessed through a SIPP, although not all SIPP providers allow the full range of permissible investment.
Advisers and their clients may also prefer to appoint an investment manager to oversee their SIPP portfolio on a discretionary, advisory or even an execution only basis. Many SIPP providers will offer a panel of investment firms, to enable clients the opportunity to deal with discretionary fund managers that are already familiar with the provider’s processes, and may therefore offer a more streamlined service, avoiding unnecessary paperwork.
- Stocks and shares: These can be managed directly or through a DFM and include company shares listed on the London Stock Exchange, the Alternative Investment Market or any overseas HMRC recognised stock exchange. Fixed interest securities and loan notes, UK Government treasury bills and other government fixed interest securities or Depositary interests/receipts.
- Collective investment schemes: OEICs, unit trusts, ETFs, investment trusts, real estate investment trusts are all allowable investments within a SIPP.
- Structured products: Where the product structure is an EEA deposit account and where the product structure is a listed company share, investment trust, bond, loan note, warrant, covered warrant or other derivative.
- Commodities: Investing in commodities be they exchange traded listed on an exchange or gold can represent a real opportunity to diversify a client’s portfolio. Gold for instance is a tangible investment, which can provide some clients with an added sense of comfort when compared with investing in stocks and shares. Some providers may offer the ability to invest in gold in different ways. For example, gold can be held as both a direct investment (i.e. the SIPP holds an interest in gold bullion) or via an investment platform, or DFM.
- Derivatives: Warrants and covered warrants listed on the London Stock Exchange, the Alternative Investment Market or any overseas HMRC recognised stock exchange.
- National Savings and investments: Products allowed by NS&I need to be held by a corporate trustee and include Fixed interest savings certificates, Index-linked savings certificates, Income bonds, Guaranteed income bonds and Guaranteed growth bonds.
- Cash: Clients may look to cash as a way of holding some of their pension as readily accessible, in case they need to take drawdown, or are intending to take PCLS or UFPLS in the short term. Cash remains a secure asset, and you will find that some pension providers offer interest in cash held. There are other options in terms of holding cash, however. Providers offer a variety of cash options, including fixed term and fixed rate accounts, notice accounts, and international currency. Some providers also offer cash platforms, which offer the opportunity to compare cash rates across a range of banks.
- Commercial property: A popular investment choice for SIPP clients, SIPPs offer a surprising flexibility in terms of the types of commercial property that clients can invest in. From offices and retail, to swimming pools and zoos; all are principally allowable subject to provider due diligence.Investment in commercial property offers the SIPP holder the opportunity for long term investment and, subject to tenant performance, opportunity to build their pension by benefiting from the following tax advantages:
- No tax payable on rental income into the SIPP. This isn’t considered a contribution, but instead deemed as investment gain.
- No capital gains payable when the property is sold from the SIPP. If development works have been undertaken, or the property market has increased, clients won’t pay any tax on this gain when the property is sold.
- If the tenant of the property is a company connected to the client (for SIPP), there may be additional advantage in that the rent payable should be deductible from the trading profits of the business, thus making a corporation tax saving.
- Bespoke or specialist investments: Types of specialist investments include:
- UK-based company shares (including ordinary and preference shares) that are not listed on any stock exchange
- Unregulated collective investment schemes
It is worth considering that these latter types of investments are non standard and due to the risk profile and/or complexity, these investments are unsuitable for most clients.
SIPPs continue to be a popular pension choice for advisers and their clients due to the flexibility and freedom of investment options, ultimately meaning there is often no need to change providers as they move through the accumulation, decumulation stages of retirement planning.
