What is a self invested personal pension?

If you would prefer to have more freedom over what you invest in and would like to hold investments directly, then a self invested personal pension could be the better option for you.

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30th August 2012 at 9:30 pm

If you’ve decided it’s time to start thinking about a personal pension plan then, like anything else you spend your hard earned money on, it’s a good idea to shop around, do some research and find out as much as you can about the different types of pensions available before you make any firm decisions about which one to go for.

While you’re doing your investigating you may well come across UK self invested personal pensions and find yourself wondering what the difference between a SIPP and a standard or regular pension is. Well, it’s no different to a regular pension plan in terms of tax relief, contributions and eligibility; the main difference is that a SIPP gives you a lot more control and flexibility with regards to your investments and is a good option for people who take an interest in the stock markets and are not risk averse.

With a conventional personal pension plan, you generally pay an insurance company to look after your investments for you and they make all the decisions about how your money is invested and what stocks and shares they are invested in. You have very little control over your pension and probably won’t think about it at all until it matures. The money comes out of your account once a month and everything is taken care of for you. This is ideal if you don’t want to have to think about it, and really have no interest or understanding of how the stock market works.

If on the other hand you would prefer to have more freedom over what you invest in and would like to hold these investments directly, then a self invested personal pension could be the better option for you. You have control over your investment strategy and can either look after your portfolio yourself or you can choose your own fund manager or stock broker to manage it for you.

A SIPP allows you to invest in a whole range of enterprises, including shares, unit trusts, investments trusts, gilts, commercial property (though not private property) and insurance company funds. You can usually invest from as little as £50 per month or transfer a lump sum from another pension plan in order to set your SIPP up. Bear in mind that if you make frequent new investments or transactions your administration costs might be higher than with a conventional pension plan. And you won’t be able to draw down on your SIPP until you are 50, so it’s a good idea to weigh up the pros and cons before you decide if a SIPP is for you.

Jane Tchan

Jane Tchan is editor of SmallBizPod. She has more than 30 years of experience gained from working across a diverse range of industries, including tourism and leisure, retailing, sports sponsorship and food. During that time she has edited a variety of publications and online media http://www.smallbizpod.co.uk

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