Got time, as well as cash? Why not run your own pension?
An imposed workplace scheme is not the only option for retirement, as more low-cost Sipps come on to the market, reports Chiara Cavaglieri
Sunday 07 October 2012
The financial pages have been full of advice on pensions with the launch of auto-enrolment last week. It has thrown a desperately needed spotlight on how and why we should be saving for later life.
But not everyone is happy that the state is stepping in. If you want to take control for your own retirement saving, a self-invested personal pension or Sipp, could prove a compelling alternative – as long as you're prepared to put the work in.
Sipps are essentially do-it-yourself pensions, offer more flexibility and a wider range of investment choices than most personal pensions. As well as cash, government bonds and funds, you can choose to invest your money in more complicated investments such as individual shares, open-ended investment companies (Oeics), commercial property and commodities.
They still benefit from all the features of a more traditional pension, including up to 50 per cent tax relief on pension contributions, but instead of trusting the provider to pick funds, you decide how to invest your contributions typically with a much wider range of funds to choose from and the opportunity to invest in direct equities by buying and selling shares.
It's true that when they first emerged, Sipps were targeted at experienced investors with substantial pension pots, but as costs have come down they have proven to be an increasingly popular choice among the general population.
"The Sipp market has been revolutionised in recent years with the emergence of low-cost plans, which have made them accessible to the mass market. Sipps are now becoming ISA-like in their appeal," says Jason Hollands of independent financial adviser (IFA) Bestinvest.
But while it may be appealing to take a more hands-on approach to your pension, you could come unstuck if you're not willing to invest time and effort, as well as cash. The more of a hands-on investor you are, the more useful a Sipp will be.
You should feel comfortable managing and monitoring your portfolio, doing your homework to pick the right investments for your particular risk appetite but with tens of thousands of UK based funds as well as offshore investment funds, the list can be mind boggling.
"I recognise the appeal and investment flexibility of a Sipp –indeed I have one myself," says Ashley Clark of Staffordshire-based IFA Needanadviser.com.
"But I worry that they are invested in for the wrong reasons. Many people just do not have the expertise or the time to manage their pension and take advantage of the flexibility,"
That said, actively managed multi-asset funds take some of the pressure off and you can also buy your Sipp through an IFA. Critically, you don't have to put all your eggs in one basket and can run a Sipp alongside a more traditional stakeholder or company pension to minimise the risk of going it alone.
However, you will still need to consider the potential expense. While stakeholder pensionws incorporate minimum standards with charges limited to 1.5 per cent a year for the first 10 years, and 1 per a year after that, Sipp charges vary widely.
And to make life that little bit more difficult, there are other potential charges to consider, including set-up fees, annual management fees, dealing charges (payable when you buy and sell an investment) and transfer fees (for moving money into a Sipp from another pension or shares), which all make it difficult to compare one provider to another.
This doesn't necessarily mean you'll be paying through the nose as you can limit the expense by picking a Sipp provider that suits your particular needs. Several low-cost providers have either no or very low set-up fees and annual management charges such as Hargreaves Lansdown, Alliance Trust and Fidelity.
Other important factors are the size of your portfolio, how many funds you hold, whether you want to hold shares and how many trades you want to make. With A J Bell's Sippdeal, for example, you get free transfers in with no minimum investment and online share dealing drops from £9.95 to £4.95 if you make 20 trades a month.
"These low-cost options are one step up from personal pensions," says Tom McPhail of Hargreaves Lansdown. "They are not trying to be super sophisticated and all things to all men, but they do offer a broader choice than personal pensions while still keeping things reasonably cheap and simple."
And if you do find the right Sipp, you still need to be confident that you are going to make the most of the investment flexibility you are paying for. With some hybrid Sipps – essentially off-the-shelf style packages – offered by various insurers, for example, charges can be lower than a full Sipp which has access to more esoteric investments, but you are often required to invest in that company's own managed funds. This may mean that you end up paying for a Sipp wrapper despite your money being invested in essentially the same funds as you would if you just invested in the company's often cheaper personal pension.
Having more control over your retirement saving is certainly compelling, but the real trick with Sipps is to get what you need without paying through the nose for it.
For more information speak to your financial adviser or find a local regulated independent financial adviser via unbiased.co.uk.
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