Horses for courses

Self-invested pensions are becoming increasingly popular among both advisers and product providers. On the surface they appear to offer wide choices and flexibility for the client but some might suggest that Sipps are overcomplicating the personal pension picture for those who can ill afford the charges involved.

There are two basic types of Sipp. On the one hand we have the ‘full Sipp’ which aims to offer as far as possible the full range of investments permitted by HMRC rules and on the other we have the ‘packaged Sipp’ that only offers a relatively small range of investments, or which perhaps limits investment choice to the funds managed by a particular life office.

It has been suggested by the FSA and others that self-invested pensions that “offer only limited investor choice from within a restricted range of asset classes” – that is, packaged Sipps – are really only standard personal pension schemes “marketed and sold as Sipps”.

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In the main, this is probably true, but there are still good reasons why it might sometimes be appropriate to recommend a packaged Sipp.

The wide choice of investments available under Sipps is one of the main characteristics that differentiate them from other personal pension plans; even a packaged Sipp will tend to offer a greater range of investment options than a standard personal pension, and full Sipps aim to accommodate unrestricted investments within HMRC rules.

Direct investments in commercial property (including the member’s own business premises), unquoted company shares, structured products and UK Reits, to name but a few types of investments, will generally be allowed under a full Sipp. Although a few packaged Sipps also allow investments in some of these assets – commercial property, for example – very few (if any) set out their stall with the promise to consider any HMRC permitted investment.

Apart from the type of investments from which a client can choose, a packaged Sipp may also limit choice to authorised unit trusts and Oeics from a given fund manager. This is quite common where the Sipp is provided by a life office with its own fund range. Alternatively, Sipps offered by stockbrokers and discretionary fund managers may allow investments in all listed securities, for example, provided the client is prepared to use the broker’s own dealing account or discretionary service. A full Sipp will tend to have no such restrictions, although they may offer a preferential charging structure if the client opts to use a preferred stockbroker or discretionary service.

Where the packaged Sipp’s more restrictive investment choice should really pay dividends is when it comes to fund switches and surrenders: it stands to reason that if the Sipp acts purely as a wrapper for a life office’s own fund range, switching between those funds should be both cheap and efficient, and generally this is the case.

The gap is being closed, however, by full Sipps working in partnership with providers of fund supermarkets and platforms. Some Sipp providers are approaching this by developing ‘synergies’ with platform providers and discretionary fund managers. Other providers may simply allow a client to use any platform of their own choice. Placing and selling investments is then as quick and painless as the choice of platform allows. Some high-end platforms also allow a client to keep their personal investments and those held by their third party Sipp side-by-side in the same account.