Best SIPP Accounts 2021

Saving for retirement is possibly the most important financial goal you will ever strive towards. Over the last few decades, average life expectancy has increased along with the cost of medical care, and the amount of money we need to put away in order our enjoy our golden years. It is, therefore, all the more important to have a nest egg for your retirement.

There are several ways through which you can save for retirement. Most working employees have a workplace pension. There are also SIPPs (self-invested personal pension), workplace SIPPS and ISAs (individual savings account). In this page, we provide you all the details you need to know, from what SIPPS to the fine details of what to look out for before investing in one. We answer the questions – where does a SIPP fit into your retirement planning? What types of SIPP are there and what features can I expect? In addition to providing you a list of some of the most reputable providers in the market for 2020.

Types of SIPPs

We can classify SIPPs as full SIPP or low-cost SIPP. On a fundamental level, both SIPPs are the same. However, they differ on the service levels, availability of financial instruments, and charges. In the following sections we provide an overview of three of the best SIPP providers from the perspective of both low-cost SIPP brokers and full SIPP providers.

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Top 3 Low-Cost SIPP

As the name suggests, low-cost SIPPs have lower expense structure as their USP. They don’t let you invest in alternative assets like commercial property or unquoted shares. However, generally, low-cost SIPPs let you start with a lower corpus as compared to a full SIPP. Some low-cost SIPP provides you with custom portfolios from which you can choose from based on your investment goals and risk appetite. If you have limited knowledge of financial markets and still want a DIY pension account, low-cost SIPP would come handy.

Best full SIPP providers

A full SIPP has a wider range of financial instruments. You can invest in shares of an unlisted company as well as commercial properties. That might sound exciting as some of the best companies of current times are unlisted companies. Some SIPPs allow derivatives like futures and options. What’s better, they generally also provide you with advisory services. But then, as the saying goes, there are no free lunches. With higher service levels comes higher costs. Full SIPPs tend to have a higher cost structure as compared to low-cost SIPPs.

Further considerations for choosing your SIPP Account provider

The reputation of your SIPP provider

• While the money you keep in your SIPP is kept in a separate trust and there you can also claim up to £85,000 under Financial Services Compensation Scheme (FSCS), it’s still advisable to look at the SIPP provider’s reputation and track record. Remember, you would be putting in a big chunk of money for a considerable period so it’s always better to be doubly sure of the SIPP provider’s financial health and reputation.

Costs

• Costs are a key aspect that you should watch out in a SIPP. There can be multiple types of costs associated with a SIPP and you get charged in a typical cradle to grave fashion. Some SIPPs charge you when you transfer your SIPP from another provider. Similarly, your SIPP might charge you when you transfer out your holdings to a different pension provider. There is also a drawdown charge once you intend to take out money from the SIPP. In between the entry and exit also, there are several charges.

SIPPs charge you an administration fee. The fee can either be flat or as a percentage of your investments. However, some SIPPs don’t charge administration fees. SIPPs also have an annual custodian charge or platform fee. Here again, it can be a flat fee or a percentage of your holdings. Along with these charges you pay dealing charges when you buy or sell securities. Some SIPPs don’t charge if you invest in funds. Some SIPPs levy a higher charge if you use offline methods to place your order.

Apart from these, there are pension drawdown fees which are payable every time you withdraw a pension from your SIPP account. There are some special fees as well like on payment of death benefits or pension sharing in a divorce. If you invest in a commercial property, there are multiple charges.

Interest on unutilized money

• At times you might keep a higher amount as cash in your SIPP account. SIPP providers have different policies when it comes to unutilized money in your account. Remember, higher interest on unutilized funds is always better for the investor.

Coverage of instruments

• If you are a savvy investor and want your money to be invested in non-traditional asset classes like commercial property or unlisted shares, you should check what all financial instruments your SIPP account would provide.

Flexibility and service levels

• Since a SIPP account is a long-term commitment, it’s important to look at the service levels associated with your accounts. Also, watch out for flexibility to shift your account to a different SIPP provider if the need arises in future.

What Can You Do With a SIPP?

SIPP helps you build a nest egg for your retirement. Even if you have a workplace pension, a SIPP would help you build a bigger corpus for your retirement. Unlike traditional pension plans where you have limited investment choices, a SIPP lets you invest in a variety of assets. You can invest in equity, debt, alternate assets, or can even hold cash in your SIPP account. You can put your money into pooled investment vehicles like investment trusts or unit trusts. You can also opt for a plain vanilla ETF. Notably, ETFs tend to have low-cost structure and deliver the returns of the underlying asset minus costs and tracking error. In developed markets especially, ETFs are a good option for investors as many actively managed funds fail to beat market despite charging higher fees.

If you are a savvy investor, you can also invest in shares. SIPPs allow you to invest in FTSE-listed as well as global shares. However, investing in overseas shares typically entails higher dealing charges. You can also invest in commercial property through your SIPP account. If you are a risk-averse investor and prefer stable returns, you can also opt for gilt and corporate bonds. If you have limited investment knowledge and don’t want to devote too much time to your investments, you can also choose from the custom portfolios that most SIPPs offer. There is also an option to hold cash in your SIPP account but given the current low interest environment, most SIPPs are not currently paying any interest on unutilized cash.

How Much Can be Paid into a SIPP Each Year?

One can make a contribution of up to 100% of his annual earnings into the SIPP account. However, the maximum contribution is capped at £40,000 in a year. Remember this includes your contribution as well as the tax rebate from the government. If you don’t have any income in the UK, you can invest up to £3,600 per year that includes £720 through the tax relief.

What Tax do SIPPs incur?

The returns that you realize in the SIPP account are not taxable unless you withdraw money from the account. Any income that you withdraw from the SIPP account is taxed at standard rates. If withdrawals are made during employment, it would not only add to your taxable income but you might also have to pay back some of the tax credits. Once you turn 55, or the retirement age, you can withdraw 25% as a lump sum from your SIPP account. These proceeds won’t attract any tax. From the remaining 75%, you can purchase annuities that give guaranteed income. However, the income from the annuities would be taxable. If you withdraw all your funds in one go, 75% of the amount would attract standard tax.

The Bottom Line

SIPPs are a tax-efficient way to plan for your retirement. The importance of retirement savings cannot be overemphasized especially if you don’t have other assets to fall back on as you grow old. SIPPs offer a variety of instruments and have something to offer to all kinds of investors. You can choose either a low-cost SIPP or a full SIPP. It’s an individual decision but you should opt for a full SIPP if you are a savvy investor and intend to invest in complex instruments. If you intend to invest in only standard assets like shares, ETFs, and bonds, its advisable to go for a low-cost SIPP as their cost structure is much lower than full SIPPs. The costs structure for nonstandard assets like unquoted shares, overseas shares, and commercial property is much higher as compared to standard assets like funds and ETFs.

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