There's no stopping the growth of Sipps

Sales of pensions that let people plan their own investment strategy are booming. So should we all be buying one?

Holiday homes are out. Ditto fine wines. Vintage cars are a write-off.

Chancellor Gordon Brown changed his mind last December about his plans to allow such luxury investments to be held inside a self-invested personal pension (Sipp). Many critics predicted his U-turn would deal a heavy blow to the popularity of these flexible pension pots. Nine months on, however, Sipps are proving a major stimulus to financial planning.

For the uninitiated, Sipps are flexible personal pensions that let savers take greater control of their retirement pot.

Despite the Chancellor's second thoughts, a number of important new benefits for Sipp holders were introduced on 6 April - A-Day - as part of a major shake-up of pension rules intended to give sophisticated savers greater freedom.

Principally, these include the ability to invest in a Sipp while still contributing to your company scheme, to withdraw cash at age 50 (soon to be 55) and place the equivalent of your entire salary inside a Sipp each year, to a limit of £215,000.

Over the past two weeks, insurers including Standard Life, Aegon, and Norwich Union have revealed healthy sales figures for personal pensions, including Sipps. At Norwich Union, overall sales in the first half of this year were up by a remarkable 86 per cent. Many savers who had not previously bothered to review their pension arrangements have now been encouraged to do so - and are choosing Sipps, a Norwich Union spokeswoman said.

Instead of their money being invested in just one investment fund, often run with an unimpressive performance by an insurance company, Sipp holders can choose racy alternatives that suit their attitude to risk - funds investing in India and China, say. Others may prefer simple UK FTSE-100 trackers.

More importantly, you can buy and sell shares within the pension, invest in commercial property or your own business and even borrow money against the investment. This flexibility has in the past come at a price - higher fees - but greater competition in the Sipps market, as well as more customers coming forward, has forced costs down, especially for simpler Sipps offering nothing more than a wider choice of funds.

Official Sipp sales figures tell only part of the story. In the first three months of last year, 3,563 new Sipps were sold; in the same period this year, that had more than trebled to 11,991, according to the Association of British Insurers.

And this figure doesn't include sales from other companies that provide Sipps, such as IFAs. That makes it difficult to calculate the size of the market but Standard Life reckons a recent £31bn industry estimate is close. Confident of sales, it has recently struck a deal with the Fidelity "funds supermarket", whose website gives investors a choice of more than 1,000 funds.

Instead of just using the site to put funds into an equity individual savings account (ISA), ordinary savers can now set up a pension online and use the funds listed to try to turbo-charge their retirement savings.

Understandably, insurers and investment companies are cheerleaders for Sipps, keen to earn money from administration, management and transfer fees. Their enthusiasm - aided by energetic marketing - is spreading.

A growing number of readers are contacting The Independent on Sunday Money desk to ask if Sipps are the right kind of pension product for them. In particular, several people in their late 30s and 40s earning average salaries wanted to know if it was a good idea to consolidate separate, smaller pension pots into one Sipp.

Much depends on your circumstances and on what you plan to do with a pension - be it to take a tax-free lump sum at 55 and draw down other income, or just amass a pot of money to buy an annuity that will give you an income in retirement. Those keen to consolidate may have "old" final salary schemes with guaranteed payouts that are better left alone. Standard Life says that the age profile of Sipp holders is at least 45, with at least £180,000 in their pot.

Before anyone considers the Sipp route, they must ask how comfortable they would be choosing the funds on which their own retirement depends. Advice from an IFA specialising in pensions is the best course of action for those thinking of a Sipp - start online at www.unbiased.co.uk, where you can find details of independent advisers. You will have to pay for their services either in commission or upfront fees.

Management fees for Sipps vary considerably. "With low-cost Sipps, you choose from a range of low-cost funds, but if you want to branch out into commercial property or shares, you'll pay higher charges," says Patrick Connolly of IFA Towry Law JS&P.

Annual running costs typically range from 1.5 per cent plus administration charges in the region of £400, to as much as 2.5 or 3 per cent. If you want to buy and sell shares within your Sipp you will incur both dealing and admin costs; you'll rack up extra fees too by switching from one investment fund to another. For ambitious projects such as using your Sipp to buy into commercial property, the annual fees can run into thousands.

"With the planned introduction of the personal accounts, the UK really only needs three types of pension," says Tom McPhail of IFA Hargreaves Lansdown.

"[These are] final salary for those public sector employees lucky enough not to have to deal with the real world; personal accounts for those who don't understand the trade-off between risk and return; and Sipps for everyone else."

Independent Partners: 10 top tips for retirement. Get your free guide here

PROMOTED VIDEO
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Reach Volunteering: Trustee – PR& Marketing, Social Care, Commercial skills

    Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...

    Reach Volunteering: Charity Treasurer

    Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...

    SThree: Trainee Recruitment Consultant - Soho

    £20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

    Ampersand Consulting LLP: Markit EDM (CADIS) Developer

    £50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

    Day In a Page

    In a world of Saudi bullying, right-wing Israeli ministers and the twilight of Obama, Iran is looking like a possible policeman of the Gulf

    Iran is shifting from pariah to possible future policeman of the Gulf

    Robert Fisk on our crisis with Iran
    The young are the new poor: A third of young people pushed into poverty

    The young are the new poor

    Sharp increase in the number of under-25s living in poverty
    Greens on the march: ‘We could be on the edge of something very big’

    Greens on the march

    ‘We could be on the edge of something very big’
    Revealed: the case against Bill Cosby - through the stories of his accusers

    Revealed: the case against Bill Cosby

    Through the stories of his accusers
    Why are words like 'mongol' and 'mongoloid' still bandied about as insults?

    The Meaning of Mongol

    Why are the words 'mongol' and 'mongoloid' still bandied about as insults?
    Mau Mau uprising: Kenyans still waiting for justice join class action over Britain's role in the emergency

    Kenyans still waiting for justice over Mau Mau uprising

    Thousands join class action over Britain's role in the emergency
    Isis in Iraq: The trauma of the last six months has overwhelmed the remaining Christians in the country

    The last Christians in Iraq

    After 2,000 years, a community will try anything – including pretending to convert to Islam – to avoid losing everything, says Patrick Cockburn
    Black Friday: Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

    Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

    Britain braced for Black Friday
    Bill Cosby's persona goes from America's dad to date-rape drugs

    From America's dad to date-rape drugs

    Stories of Bill Cosby's alleged sexual assaults may have circulated widely in Hollywood, but they came as a shock to fans, says Rupert Cornwell
    Clare Balding: 'Women's sport is kicking off at last'

    Clare Balding: 'Women's sport is kicking off at last'

    As fans flock to see England women's Wembley debut against Germany, the TV presenter on an exciting 'sea change'
    Oh come, all ye multi-faithful: The Christmas jumper is in fashion, but should you wear your religion on your sleeve?

    Oh come, all ye multi-faithful

    The Christmas jumper is in fashion, but should you wear your religion on your sleeve?
    Dr Charles Heatley: The GP off to do battle in the war against Ebola

    The GP off to do battle in the war against Ebola

    Dr Charles Heatley on joining the NHS volunteers' team bound for Sierra Leone
    Flogging vlogging: First video bloggers conquered YouTube. Now they want us to buy their books

    Flogging vlogging

    First video bloggers conquered YouTube. Now they want us to buy their books
    Saturday Night Live vs The Daily Show: US channels wage comedy star wars

    Saturday Night Live vs The Daily Show

    US channels wage comedy star wars
    When is a wine made in Piedmont not a Piemonte wine? When EU rules make Italian vineyards invisible

    When is a wine made in Piedmont not a Piemonte wine?

    When EU rules make Italian vineyards invisible