An investor’s guide to SIPPs (P1)
In recent years it’s become clear that the developed world faces a retirement crisis.
Private pensions are becoming far less generous (most companies have ceased to offer final salary structures) and we’ve seen cutbacks in public spending thanks to austerity measures in response to the financial crisis of 2008. To make things worse, savers have been caught in the crossfire of low interest rates designed to breathe life into the economy.
But it’s not all doom and gloom. “Pension Freedom Reforms” introduced by the UK government in April 2015 have made it easier for people to take control of their pensions. Self-Invested Pension Plans (SIPPs) are a key part of this movement, one which presents huge opportunities for those with the initiative to take their long-term financial security into their own hands.
In this two-part blog series, we take a closer look at SIPPs. So let’s get into the basics of what SIPPs are, what they enable you to do, and most importantly, why you might benefit from having one.
What exactly is a SIPP?
SIPP stands for Self-Invested Personal Pension. They differ from traditional employer administered pension schemes, which give holders fewer options as to how their retirement funds are managed.
SIPPs are long-term, tax efficient investments designed to help fund your retirement. They can be thought of as “DIY” pensions — you choose which investments to make and remain in control throughout the process, managing your savings via an online platform.
This approach has two advantages over the traditional approach to pensions. Firstly, it gives people visibility over their retirement funds and how they are performing. And secondly, for those who are financially savvy enough to manage a portion of their own pension, it provides much more flexibilityto proactively diversify across different asset classes at short-notice.
What can I invest in via a SIPP?
Bonds, stocks, mutual funds and ETFs are all fair game if you have a SIPP. The full list of eligible securities includes:
- Stocks and shares
- Investment trusts
- Gilts and bonds (including corporate bonds)
- Open-ended investment companies
- ETFs
- Bank deposit accounts
- Commercial property
- Real estate investment trusts
- Offshore funds
Diversification is perhaps the most striking advantage of having a SIPP…
As with all investments your capital is at risk. WiseAlpha members purchase Notes which are fractions of individual corporate bonds.
