What is a SIPP pension - and is it right for me?

Think of a SIPP as a DIY personal pension. It’s still a type of pension wrapper, like a traditional personal or workplace pension, but it gives you much more flexibility over what you invest in.

Whereas most standard pensions limit you to a range of pre-selected funds, a SIPP allows you to go further and invest in shares, bonds, commercial property, and even exchange-traded funds (ETFs).

If you’re someone who wants to make your own investment decisions or work closely with a financial planner to do so, a SIPP can open up a lot of possibilities.

SIPPs appeal to individuals who want greater autonomy over their retirement savings.

SIPPs can be particularly helpful for:

• Business owners who want to invest in commercial property or manage their pension alongside their company.
• Freelancers or self-employed people who don’t have a workplace pension and want more control.
• High earners comfortable with taking more risk with their retirement savings compared to a standard pension plan.
• Anyone with multiple pensions who’d prefer to consolidate into one place and manage their retirement savings more actively.

That said, SIPPs aren’t for everyone. If the idea of choosing your own investments sounds more overwhelming than empowering, there may be better options out there.

Unlike traditional pensions that are usually managed by a fund manager within a limited range of funds, a SIPP puts you (or your adviser) in charge of choosing and managing investments. This greater control can increase risk, especially if investments are poorly chosen or markets are volatile, which is why it’s better suited to those with the knowledge, interest, or expert support to actively manage their pension.

SIPPs offer many of the same features as traditional pensions, including tax relief on contributions, the ability to consolidate multiple pension pots, and access from age 55 (rising to 57 in 2028). And as with a standard pension, you’ll still need to stay within your annual contribution allowance.

But what sets SIPPs apart is the level of control and flexibility they provide. Here are some of the key advantages:

• Wider investment choice: SIPPs allow you to invest in a much broader range of assets, including individual shares, property, bonds, and exchange-traded funds (ETFs).

• Tailored strategy: You or your adviser can build an investment strategy that reflects your personal values, risk appetite, and long-term goals, whether that’s a focus on sustainability, specific sectors, or global growth.

• Commercial property investment: SIPP holders who run businesses can use their pension to buy business premises, potentially offering both tax advantages and long-term growth.

• Potential for stronger growth: by actively managing investments (or delegating to a trusted adviser), there’s a chance to outperform standard pension funds.

• Estate planning opportunities: SIPPs can be passed on to beneficiaries, often in a tax-efficient way, making them a useful tool in intergenerational wealth planning.

There are, and it’s important that you understand them.

• Higher fees: SIPPs can cost more to run, especially if you’re investing in complex or niche assets.

• More responsibility: With greater freedom comes the need to be more hands-on, or at least to delegate that responsibility to a suitably qualified IFA.

• Risk of poor decisions: Without a clear strategy or expert input, it’s easy to take on too much risk, or not enough, and miss out on potential returns.

A SIPP can be a powerful tool, but only if it aligns with your circumstances, knowledge, and goals. Before diving in, it’s important to assess:

• Your investment experience – Are you comfortable choosing funds or assets?

• Your time – Do you have the time and inclination to regularly check on the performance of your portfolio?

• Your retirement goals – Does a SIPP give you the flexibility and freedom to reach them?

• Your attitude to risk – Unlike standard pensions that are professionally managed, a SIPP gives you direct control over where your money goes. That means you (or your adviser) must be comfortable making investment decisions – and accepting the increased responsibility and potential larger swings in value that come with self-managing your pension.

For many people, a standard pension offers everything they need, with fewer decisions and less complexity. But for others, the freedom and control of a SIPP can be genuinely empowering, especially with the right support in place.