Sipp freedom: run your own pension

By: Tracey Boles
The Guardian, Sunday October 29, 2000

Internet plans will cut fees and transform prospects, says Tracey Boles.

Control, freedom and choice are advantages that self-invested personal pensions, or Sipps, seem to have over other personal pensions. So why were there only 50,000 Sipps among the 6 million private pensions taken out last year, and will this change as online Sipps arrive?

Sipps were introduced in 1989 to enable pension holders to manage their own investments. They can be used to build up a pension for retirement or, more traditionally, to house a fund set up after retirement.

Sipps, like other personal pensions, are available to employees who are not in company schemes, to the self-employed and to partnerships.

Thomas McPhail, pensions development manager for Wolverhampton-based financial adviser Torquil Clark says: 'Sipps would suit someone in their forties or fifties who wants to do something imaginative with their fund, and growth is tax free because it is in a pension fund. But you should have investment knowledge, or pay an adviser.'

The choice of investments under Sipps is wide. Money can go directly into shares or collective investments such as unit trusts as well as into life insurance and commercial property.

This means you don't have to place all your hard-earned cash with one provider, as you do with other personal pensions. You can diversify your investments to minimise risk, and take your pick of the best performers'z.

Nick Bamford, managing director of Cranleigh-based financial adviser Informed Choice, which does a lot of Sipps business, says: 'Sipps give you control over your investment, something many people find appealing given current disillusionment with providers.'

But they are perceived as expensive. There are set up charges, annual charges, fund management charges and trading charges - all of which can run into thousands of pounds, making small Sipps impractical.

McPhail says: 'They are definitely for high net worth clients. You are looking at making monthly payments of £400 to £500 a month on top of a lump sum transfer value or one off payment of £20,000.'

He says if the Sipp is for an income drawdown plan - which allows you to keep your fund invested in the stock market after retirement while you draw an annual income from it - you need£100,000.

But if you are seeking a spread of investments, you could consider a personal pension such as Skandia's which invests in a wide range of funds without the hassle of all the trading involved with Sipps.

Bamford disagrees.'If you are using a Sipp for income drawdown, you will have to build up a substantial fund, he says. 'But the situation is different if you are building up a fund. It works out cheaper than taking out a pension through an insurance company.'

Sipp charges do vary. Establishing a Sipp can cost anywhere between £500 and £1,000, while management fees can be as much as £500 a year. The trading fee is typically 1 per cent of the deal.

Life insurer National Mutual's Sipp has a setting-up charge of £625 and an annual management fee of £400. If you trade yourself, it will cost you £25 a shot. James Hay's Sipp has a setting-up fee of £290 and an annual management charge of £455. Trading costs a minimum of £30 each time.

However, it is launching a new Sipp through financial advisers on 1 November. Its Select Sipp rolls all the fees into an annual charge of 0.75 per cent. This translates into £750 on a £100,000 fund, plus commission agreed with the adviser.

A new operation has stripped out all these costs by selling Sipps online. is offering a Sipp whose only charge is the trading fee - between £15 and £30, depending on the size of the deal. It hopes to bring Sipps to a much wider audience.

The minimum contribution is £150 a month on top of a lump sum investment of £1,000. It is aimed at people who trade online.

At present it is only possible to invest in shares through Sippdeal - 'though by early next year we will be offering a full range of unit trusts which will bypass this limitation,' says spokesman Fergus Lyons.