If you’re looking to have greater control over your personal pension, one option is to consider a Self Invested Personal Pension (SIPP). A SIPP lets you make choices about where your pension monies are invested and provide access to lots of investment opportunities including shares, funds, commercial property and other assets.

Our guide looks at what SIPPs are, what assets you can hold and some factors you should take into account when choosing one.

What is a SIPP?

A Self-Invested Personal Pension (SIPP) is a government approved UK personal pension scheme, which allows you to make your own investment decisions from a wide range of HMRC approved investments.

HMRC rules allow for a greater range of investments to be held within a SIPP than in other pension plans, but in many ways they are similar to other personal pension plans. Rules for contributions and the withdrawal of benefits are the same as for other personal pension schemes.

What assets can you hold in a SIPP?

The HMRC rules mean there is a wide range of assets that you can hold in this type of personal pension. Assets that are not subject to a tax charge include:

• Authorised UK OEICs and unit trusts
• Stocks and shares traded on a recognised exchange
• Commercial property
• Deposits
• Most investment trusts
• Traded endowment policies
• Gold bullion
• Contracts for difference and other futures and options

The taxation of SIPPs

Contributions to SIPPs are treated in the same way as contributions to other personal pensions. That means that contributions are limited to £3,600 per year (£2,880 before the 20% tax refund) or 100% of earned income (if higher).

Whoever provides your SIPP claims a tax refund at the basic rate (currently 20%) on your behalf. For example, if you contribute £2,880 to your pension, £3,600 will actually be invested.

If you are a higher-rate Tax Payer you can claim additional tax relief through your tax return.

Factors to take into account if you’re considering a SIPP

Whilst there are lots of advantages of SIPPs, they are not for everyone. They can be complicated and more expensive than other pensions and so it pays to get some advice from an independent financial advisor (IFA) before you make your choice.

For example, a SIPP means that you will have to take full control and responsibility of where your pension is invested, or you will have to pay someone to manage it for you. And, if you want to benefit from the investment options offered by a SIPP you will generally pay higher charges than investing in a traditional personal pension.

In addition, you can often pay two sets of management fees; one for the SIPP wrapper and another one for the investments you place in the SIPP.

If you are an inexperienced investor, you may also make mistakes with the investments you put into your SIPP. Some commodities are allowed but you could wipe out your pension pot if you get the investments horribly wrong.

SIPPs can be a great way of taking control over your pension arrangements, but they are not the perfect solution for everyone. Make sure you take advice before you commit.