Choosing the wrong SIPP or SSAS could seriously affect your retirement prospects, so here’s a few pointers to help you work out which SIPP or SSAS is likely to be right for you.
How To Find Which SIPP Is Right For You
Things To Take Into Account In Deciding Which SIPP To Select
Not all SIPPs are the same. Some are fully flexible, yet others severely limit your investment choices. Some are offered by billion pound companies, and you’ll find others from tiny niche players in a particular area of the market. Choosing which SIPP will work best for you is an important decision, so it pays to know where to start.
Which SIPP Has The Most Competitive Charges?
None of us likes to pay over the odds for anything. So when it comes to your pension, which could end up being one of your largest assets in which your money could remain invested for many years, you’d have thought it would be vital to start by finding the most competitive SIPP in the marketplace.
There’s no doubt it’s really important to know exactly how much you’re going to be charged by your SIPP operator in both explicit management fees and hidden charges which may be buried in fund prices. But interestingly, cost shouldn’t be your starting point.
Which SIPP Operator Is The Best In The Market?
Your SIPP operator is responsible for sorting out all your SIPP administration requirements. This includes setting up your SIPP, transferring in funds from other pension schemes, accepting contributions, claiming tax relief from HMRC, running your SIPP Bank Account, checking your chosen investments are SIPP acceptable, setting up your investments, paying your retirement benefits, and much more.
Before you sign on the dotted line, you need to know that your chosen SIPP operator is profitable, it has strong cashflows, it’s still taking in new business, it has good service standards, its customers are loyal, and the regulator has given it a clean bill of health. If your SIPP operator fails and the administration of your SIPP has to be moved to another firm, it can create uncertainty, a fall in service standards and charges could increase. There’s no risk to your pension money, for that remains separate from your SIPP operator as your SIPP is written in trust. But without doubt, it’s a messy situation that’s best avoided. Surprisingly though, finding the right SIPP operator is also not the starting point to finding which SIPP is right for you.
Which SIPP Permits The Right Sort Of Investments?
There’s a lot of myths surrounding SIPP investments. Here are four of the most common.
Every SIPP can hold any investments acceptable to HMRC, except obvious things like residential property.
Wrong. It’s up to a SIPP operator to decide in which part of the market it plays. It may choose to restrict investments to stockmarket assets only. It may specialise in commercial property, or cash deposits only. It definitely doesn’t have to offer everything acceptable to HMRC.
If an investment says ‘SIPP Approved’, it can be held in any SIPP.
Wrong. All this means is that at least one SIPP operator has done sufficient due diligence to accept it within its SIPP. A ‘SIPP Approved’ badge is neither a guarantee the investment will succeed, nor an endorsement you can rely upon.
If a SIPP doesn’t perform well, it’s the SIPP operator’s fault.
Wrong. People often switch SIPPs because they claim their SIPP has under-performed. This suggests they haven’t grasped the point that a SIPP is “self-invested”. As the investment decisions within a SIPP are yours, you only have yourself to blame if you’ve selected investments that haven’t done as well as you’d like.
Non-standard investments are exclusively high risk.
Wrong. Both standard and non-standard investments can be high risk, and there can be lower risk options in both areas too. Standard investments, typically stockmarket assets that are regulated by the Financial Conduct Authority, can fail, leaving you with nothing. Shareholders of Comet, Woolworth and many other major firms know this to their cost. Peer-to-peer lending and crowdfunding is attracting hundreds of millions of pounds and delivering good returns, yet these investments are non-standard. Interestingly, billions have been invested in buy-to-let property with no regulatory protection whatsoever, yet in Britain, we love residential property despite it being a non-standard investment.
To Find Which SIPP Is Right For You, Start With The End In Mind
Taking control of the investment decisions of your pension money sounds like a great idea. It’s why more than 1 million people in the UK have a SIPP. But it comes at a price. Either you commit the time and resources to researching the investment market. Or you pay an adviser or fund manager to do it for you, which could reduce your net returns.
If your preference is to stick to stockmarket investments, depending on the size of your fund and how involved you want to be with the investment decisions, a SIPP may well be wrong for you. You may actually get better value from a low cost Stakeholder Pension or a Personal Pension from a major insurance company. Before you even consider moving your money, make sure you carry out a thorough pension review, for if your current pension is growing in line with your requirements, why bother?
If you like the idea of diversifying your money into a range of loans and investments, you’re very much in SIPP territory. But it’ll rule out a whole lot of SIPP operators that restrict the areas in which you can invest.
Fully flexible SIPPs are generally more expensive, so if you primarily want to focus your money in one area, you might opt for a less flexible SIPP that comes in at a lower price. It goes without saying that if you end up with a SIPP that allows you to do loads of things you’ll never use, it’s a little like buying a Rolls Royce just to go to the shops.
If you decide you’d quite like your pension to invest in your business, or you want to create a pension for your family, or you really want to be in control of your investment decisions without being restricted by a SIPP operator, you may be better off with a SSAS, the 'employer' self-invested pension for people who work for their own company.
There are many more scenarios than these, each of which will pull you one way or another, and not necessarily towards a SIPP or a SSAS. And that means the conclusion is clear.
The first thing you must do in working out which SIPP or SSAS is right for you is to decide in which areas you’d like to invest your money. If you go about it in any other way, you run the risk of ending up with the wrong SIPP or SSAS, the wrong SIPP or SSAS operator or the wrong sort of pension altogether. And that could work out to be a really expensive mistake!
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As SIPPclub neither advises on, nor arranges, nor recommends specific investments or strategies, we're unable to say whether a SIPP or SSAS or any investment within it is right for you. Ultimately, it’s your money and your decision, and you should only proceed once you're satisfied you've undertaken sufficient due diligence. If you need advice, you should speak to your trusted adviser, or you could find a local adviser from Unbiased.co.uk. Alternatively, we'd be pleased to introduce to a suitably qualified independent financial adviser.
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