SIPP Pension Advice

The Pros and Cons of Investing in a SIPP Pension

SIPP pensions have been increasingly popular over the past ten years, as pension holders have become disillusioned with the performance of their existing pension plan.

Many people find it very restricting to be tied in to a pension company’s limited selection of investment funds, you might find the flexibility of a Self Invested Personal Pension (SIPP pension) an attractive proposition. The term is entirely self-explanatory in so far as you remain completely in control of every investment for your pension fund and still enjoy the benefits of the income tax relief that is granted to all pension plans - ie funds you invest is invested before the deduction of tax, so that if you would otherwise have paid the basic rate of 20% tax, every £100 investment is effectively invested for £80.

The pros of a SIPP Pension

Whilst you keep control of the investment decision-making process, you do not need to make all of these decisions on your own. Your SIPP pension can be managed with the help of an independent financial adviser, who will be able to offer all the necessary investment advice and potentially steer you away from rash or unwise investments.

Although you will be paying for the professional management of the fund - by way of commissions that he will take from the investments made - nevertheless the SIPP pension will still cost less than a traditional pension from a pension company.

SIPP pensions were first intended for pension holders with enough capital to maintain a significant pension fund and to pay the fees of an investment manager, but the charges have over the years reduced, so that relatively modest pension funds can be maintained on a SIPP pension basis. The upper limit of pension contributions that can be made into a SIPP is 100% of your salary up to £245,000.

The cons of a SIPP Pension

Ironically, what makes the SIPP pension attractive for pension holders, ie that they are responsible for the investment decision making - is also what makes them dangerous. SIPP pensions are not for the type of investor who knows little about the financial markets, or knows nothing about portfolio diversification, nor indeed anyone who is not at home with doing financial research and making prudent investment decisions.

Although this degree of freedom will be enjoyed by many investors, for other pension holders the range of investments can be daunting. The allowable investments include anything from individual shares to bonds, CFDs, forex, gilts, traded endowment policies, cash or commercial property. However, the government’s original idea to include “exotic” investments such as art, antiques, vintage cars have not been implemented.

Another drawback of a SIPP pension is that the costs of setting up and managing a SIPP pension can be quite high. Set-up costs can be as high as £1,500 and in addition to that, you need to factor in the annual management charge on top of that. In addition, there will be dealing charges to consider, which arise when you buy and sell the investments included in the SIPP pension.

If you get things completely wrong, of course, and end up making poor investment decisions, then the whole of your pension savings are at risk.

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SIPP Pensions have gained immensely in popularity over the past few years. In particular, an ever increasing level of interest has been in property investments, given the rise in property values, and the tax benefits that they offer.  Moreover, the introduction of ‘SIPP qualified’ overseas property investments has helped to provide investors and pension fund holders with increasing teir investment options.

To provide additional comfort to the investor, Self Invested Personal Pensions / SIPPs are regulated by the Financial Services Authority (FSA), which is increasingly important in today’s uncertain and volatile economic climate.

Most new property developments, both domestically and overseas, are SIPP recognised, and if you looking for an property investment for your SIPP pension, this can be a good investment choice. A reputable investment firm will be able to assist with any questions and guide in the right direction for further detailed information, and assist you in your investment decisions.

Pension Benefits of a SIPP Pension

The development of SIPP pensions have enabled integration and flexibility for savers to determine how their funds are invested, giving them much more control. Traditional pensions have often been limited in diversification, and the investment choices available.

SIPP pensions have enabled the pension holder to remove under-performing investments from their portfolio, thus maximising the return potential. The flexibility of a SIPP offers a lot of unique investment advantages, avoiding the problems associated with traditional pensions that may have heavy losses during periods of economic downturn.

Property Management Advantages of a SIPP Pension

One thing to note is that property investments through SIPPs can be accessed through real estate investment funds, where a wide selection of properties are selected and managed by experts. This option allows for diversification, and a decent return potential, and also lowers the risk factors involved.

Whilst it of course possible for an investor, in a SIPP Pension or traditional pension plan to invest in a property fund, acting as an individual investor will enable the SIPP investor to benefit from personal control over his or her pension fund. Owning investment properties through a SIPP fund avoids complicated legal issues, high capital outlay and overall property management issues, and at the end of the day, can produce better investment returns.

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