Are SIPPs right for you?

SIPPs are a great way of taking more control of your pension – however, they have both advantages and disadvantages.

With an ordinary personal pension or stakeholder pension you are entrusting your money to one fund manager. If they underperform, so will your money. It’s effectively putting all your eggs in one basket.

SIPPs allow you to choose the best fund managers from a range of companies in order to spread the risk. If a particular fund manager is underperforming, it’s much easier to switch to another with SIPPs than with a personal pension.

You retain all the tax advantages of a personal pension, plus with SIPPS you can take up to 25% of your fund as a tax-free lump sum from the age of 50.

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However, if you have access to an occupational pension scheme where you employer contributes, it’s probably better sticking with that.

On the downside, SIPPs can work out more expensive than personal pensions, which usually only charge a small annual fee usually of around 1%. As well as this, most SIPPs providers operate on a fixed fee basis and therefore they could work out more expensive for smaller investments. In other words, the larger the investment, the smaller the charges are proportionally.

If you’re the kind of person who prefers someone else to take care of things then SIPPs are probably not for you, as they do require much more maintenance than a personal pension.