The pros and cons of Sipps for clients and advisers

“But some Sipps are more expensive than personal pensions and stakeholder pensions, so it is important that investors check what they are paying and make sure it is value for money.”

“Different types of drawdown are technically available in any type of pension scheme but in practice they are usually provided under a Sipp,” points out Hyman Wolanski, managing director of Sippchoice.

“But that’s not a reason to go into a Sipp though, that’s a reason to maybe transfer into a Sipp later on if that’s what your client wants.”

Indeed, Sipps can offer substantial benefits in retirement planning, not least flexibility and control of the pension fund, but Robert Graves, head of pensions technical services at Rowanmoor Group, cautions that circumstances can easily change either to the client’s advantage or disadvantage and so a number of factors need to be considered.

He says these include:

• changes in tax rules. For example income tax rates that will affect the amount of tax relief on contributions and tax payable on pension income;

• changes in pension law. For example adjustment in the lifetime allowance, annual allowance and maximum drawdown;

• investment performance of chosen assets and their risk factors; and

• changes in personal circumstances. For example, employment, need for income, death of a spouse.

“The key benefit of a good Sipp is that it can adapt to these changes to lessen the adverse effects and benefit from opportunities in the client’s interests,” states Mr Graves.

“Conversely the added flexibility of Sipps may come at a price which, if such flexibility is not used, could prove more costly than simpler retirement planning options.”

The choice between a Sipp and a normal personal pensions, says Mr Wolanksi, is akin to choosing between two cars.

“It’s like choosing to buy a mini or an Aston Martin: an Aston Martin is a nicer car but if you’re only driving back from the supermarket every day then it’s a bit of a waste. If you’re going to use it’s features other than as a trophy then it’s worth having. Make sure you’re not paying for features you’re not ever going to use.

“For anyone who’s got an interest in their pension they’re much easier and nicer to work with, but if someone is starting out with a pension its just as easy have a stakeholder or personal pension.”