What is a SIPP and how do I get one?
We recently collaborated with leading pension provider PensionBee to bring you six podcasts all about pensions. These podcasts cover the basics as well as looking in depth into different types of pensions.
In this episode of the How To Be A Money Magpie podcast, founder Jasmine Birtles is joined by Rachel Rickard, Deputy Personal Finance Editor of the Mail on Sunday and Rosie Murray-West, a freelance personal finance journalist.
They discuss SIPPs (self-invested personal pensions), what they are, how they actually work, and how you can set one up.
Listen to the podcast below or read the written summary!
- What is a SIPP?
- Do you need to be an investor yourself?
- Can SIPPs be easy?
- How do you get a SIPP?
- What are the advantages and disadvantages?
- Can you hold residential property?
- Who do you think should have a SIPP?
- Do you have a SIPP?
- Any other advice?
“A SIPP is a self-invested, DIY pension that you manage yourself. You have total responsibility for how much you put in and when, and what kinds of investments you choose to put your money in. You have a huge choice of investments from most providers.
It’s pretty simple. You put in as much money as you like, at whatever rate you like generally. Then, come retirement age, or even earlier, as you can access SIPPs at 55, you can take the money out if you choose, or leave it invested.”
“That’s the other side of it. You have full responsibility yourself of what you put your money into. Lots of SIPP providers will offer hundreds, sometimes thousands of different investments, and you do have to make those decisions yourself.
That doesn’t mean that it has to be complicated, or you have to have lots of knowledge to pick them. You can still do it in a fairly straightforward and simple way.”
“There are several ways to have a SIPP that’s uncomplicated in fashion. There are companies where you fill in a questionnaire where they can help you find funds that are suitable for you.
There are always funds within the hundreds and thousands that Rachel talks about. They will have the information you need, and you can pick the one most suitable for you. That makes it a little bit easier, but I appreciate it can be daunting to start. That’s why having these automated services can be helpful for some people.”
“You can go through a financial advisor if you want, but they’ll charge you. You can also choose to do it yourself. There are lots of investment and wealth platforms that offer SIPPs, so the trick is to pick the best one for you.
This depends on a lot of things, such as cost. You don’t want to overpay, and lots of platforms can charge high fees. Some offer a flat fee where you pay a certain amount per month, regardless of how much you have in your pot. Others may charge a percentage of what you are holding in it.
Some platforms have a much larger range of investments. For a beginner, you may not want a huge range beyond what the standard providers offer. People don’t tend to move their SIPPs very often, so it is worth considering the future and how you might develop as an investor.
Customer service and the type of offering they have is also important. Some are simpler than others. It’s worth looking at reviews to find out what people think of them. Find one that suits you now, but also will grow with you.”
“A SIPP is a form of pension and having a form of pension is vital. If you don’t have a pension at all, or think you should be contributing more, it’s an option. It also gives you a massive amount of choice.
A lot of SIPPs are technologically advanced, so you can see it at the click of a button online.
As Rachel said, they are expensive. They may be more than you need if you are a new investor. Other than that, they are a good product.”
“The only way to hold residential property is through funds and portfolios of houses. If you are excited about the way property prices are going to go, you can get access to them that way, but you can’t have a buy-to-let property and put it in a SIPP.”
“If you have access to a workplace pension, that is by far the best choice for most people, because your employer has to pay in too. That is definitely the best place to start.
For people who don’t have access to a workplace pension, it’s a good option, for example people who are self-employed. You still get tax relief with a SIPP, as you do with any type of pension.
Having said that, there are other options. One may be a Lifetime ISA, which if you’re between 18 and 40 is a good way to save for retirement. You get a 25% bonus from the government when you pay into a Lifetime ISA up to £1,000. You can get that bonus until the age of 50.
There are stakeholder pensions, which have caps on fees. That can be good to keep costs down. You don’t get as much flexibility and you don’t get as many options as with a SIPP, but if you just want something simple, this is a good option.”
“I’ve been freelance for a few years, so I set up a SIPP when I left my workplace. I’ve actually really enjoyed being able to look at my funds, see how it’s going. Iv’e learnt a tremendous amount.
I’ve learnt a lot about diversification, how different funds perform. It makes you realise how important that tax relief is when you see it coming in.”
“Just to do it and do it imperfectly. Don’t wait. It can seem quite daunting. Don’t wait for perfect, try, just start. Even just a single, low-cost fund to get you going. Then you can start learning and develop a portfolio. Starting is better than waiting until you feel you know absolutely everything.”
“Automate it and do it regularly. It smooths the returns too and helps you snowball into a bigger fund.”