Pensions made for people who love being in control
Sipps have thrived by letting customers make their own investment choices. Are you bold enough to buy one? asks Julian Knight
Sunday 27 July 2008
Some people might think of pensions as boring. Others might view them as inflexible or expensive. Others still, influenced by mis-selling scandals, would call them untrustworthy. But the growing sales of self-invested personal pensions suggest that, to these buyers at least, they're none of the above.
As the name suggests, Sipps are DIY pensions where savers have a very wide choice in where their cash goes. They can buy and sell investment funds, company shares, bonds or even commercial property and keep them in their pension fund. The choice is 100 per cent the investor's; with a standard pension fund, the provider makes the investment decisions.
At a time when people are increasingly sceptical about the returns generated by conventional pension plans, Sipps have their appeal. "The market is currently growing by around 50 per cent a year," says Tom McPhail, head of pensions at independent financial adviser Hargreaves Lansdown, which offers its own Sipp. "People like the idea of being in control of their own destiny rather than signing it over to some faceless insurance firm.
"Sipps are easy to administer too. With some of the plans, savers can see what investments they hold and buy and sell online. This gives them a real sense of ownership."
The Sipps market may also be given a shot in the arm from October when savers will be allowed to transfer contracted-out national insurance contributions into the plans.
Contracting out is a complex and at times controversial area. What it boils down to is that instead of building up entitlement to the state second pension, an individual will transfer the money out of the state system and into a personal or workplace plan, with the aim of generating a bigger retirement income.
However, this doesn't always work out for the best and many customers have been told by their pension firms that they would be better off returning to the state system. Nevertheless, a lot of money is still contracted out and, because of October's rule change, it could soon find its way into Sipp accounts.
"Up until now, the Government has not wanted the billions of contracted-out money going into Sipps, because the area was unregulated," Mr McPhail explains. "But with the advent of Financial Services Authority regulation, the Government's attitude has relaxed and people will be able to transfer money from other pension schemes into their Sipp."
However, not all is rosy in the Sipp garden. For one thing, some providers levy an upfront set up fee that can be as high as £500. And annual charges can be higher than the cheapest personal pensions. Sipp providers also levy transaction charges, so each time you buy or sell an investment held within the plan, you pay.
Above all else, the saver has to live with the consequences of their investment decisions; they can just as easily lose as win. Even savers with the knowledge, experience and sheer nerve to undertake a DIY pension successfully may not have the time and the patience.
"Some people think of Sipps as a bit sexy – a way to be in control," says Michael Rudge, UK managing director of pensions company The Hartford.
"But that requires lots of hard work and what often happens is that after the initial burst of enthusiasm, investors leave the money they have paid in untouched.
"Sipps have their place but it's limited. To suggest that in a few years they will supersede standard pensions is a non-starter."
Mark Dampier: Don't panic. Canny investors sit tight when the stock market falls
Shareholders can hold a company to account
Derek Pain: Dividends ease the suffering in a moribund stock market
Questions of Cash: Payment woes with Barclays overshadow Cornish holiday
Bank-beating exchange rates on your international payments
- 1 Revolutionary lost Caravaggio painting 'Mary Magdalen in Ecstasy' identified
- 2 McKamey Manor: This 'extreme' haunted house is the stuff of nightmares
- 3 Russell Brand says he will 'probably' give up acting to focus on his revolution
- 4 Watch what happened when food critics were unknowingly served McDonald's
- 5 David Beckham's Haig Club whisky is exactly what’s wrong with the Highlands
Of course, teenage girls need role models – but not like beauty vlogger Zoella
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Support for EU membership 'at highest level since 1991' with most Brits wanting to stay 'in'
Tony Blair 'says Ed Miliband will lose 2015 general election'
Thousands with degenerative conditions classified as 'fit to work in future' – despite no possibility of improvement
Putin: The US is to blame for almost all the world's major conflicts
iJobs Money & Business
£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...
£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...
£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...
£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...
Day In a Page
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
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village