Self Invested Personal Pensions (SIPPs) have enjoyed huge popularity over the past few years.
A change in the pension rules on 6th April 2006 (known as ‘A Day’) meant that many SIPP providers were able to market these existing products more towards the general public.
Promoted to be more flexible pension products with greater investment choice, the flat charging structure, on first view also seems to be attractive.
But in all honesty how many people can say they have an actual property within their pension, or a yacht, or a piece of art? My guess is that the majority of SIPP owners, in fact just invest in funds or shares.
So if you’re not taking advantage of the additional investment flexibility, is the simple charging structure of benefit? Unlikely. That’s because most SIPP providers will charge an initial set-up fee, then an annual administration fee. Even if your provider waives these fees, don’t forget that everyone pays annual management charges on the funds they hold.
A typical fund annual management charge is in the region of 1.70%, and sometimes well over 2% per annum. Not really that cheap when you add in the other costs of buying and selling.
In the majority of cases a straightforward Personal Pension will do the job just as well as a SIPP and most often cost less.
However these are not without their pitfalls. Many Personal Pensions include high plan charges and quite frankly terrible fund choices. Poorly performing funds are the cancer of Pension investing. They will eat away at your hard earned money. That’s why making the right investment choices, I dare say, is far more important than any other aspect of choosing a pension plan.
So don’t get hung up on choosing the right plan. Make sure it’s the choice of investment funds that takes the highest priority. If you’re not sure, get help.