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.
Jo from Northern Ireland was less than impressed by Russell Brand's attempt to stage a publicity stunt
- 1 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
Shock poll shows voters believe Ukip is to the left of the Tories
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
New era of cheap oil 'will destroy green revolution'
Ukip founder Alan Sked and Nigel Farage 'begged Enoch Powell to stand as a candidate'
Ukip candidate jokes about 'shooting peasants' in racist and homophobic rant
iJobs Money & Business
£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...
£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...
$125 - $175 per annum: Carlton Senior Appointments: Senior Wealth Manager In...
$200 - $350 per annum: Carlton Senior Appointments: Managing Producer Office...
Day In a Page
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens