SIPP or personal pension - advantages and disadvantages?

29 July 2021

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Question by Anne

SIPP or personal pension - advantages and disadvantages?


Answered by Cecilia Reilly

Hello Anne,

Thank you for your question. Whether you choose a SIPP or a personal pension will mainly depend on what you plan to hold within your pension and how complex your needs are.

SIPP vs Personal Pension

A SIPP (Self Invested Personal Pension) and a Personal Pension are both pension wrappers that hold investments in a tax efficient environment until you retire. SIPPs and Personal Pensions both benefit from the same tax advantages within the wrapper and when taking benefits. They receive tax relief on contributions to the pension, the funds grow within the pension tax free and benefits cannot be accessed until age 55 (age 57 from 2028).

When accessed, 25% of the fund is tax free with the remainder taxed as earned income. They would also be treated the same way in regards to inheritance tax with the funds within the pension wrapper being held outside the members estate and not subject to Inheritance tax

The main differences between the two are the cost and the range of investments available.

A personal pension will often have a limited number of funds to choose from and the cost is usually percentage based.

A SIPP usually has a fixed annual fee and additional charges for activities such as fund switches, additional valuations, contributions and withdrawals this will differ from provider but will usually work out to be more expensive for those with smaller funds than a personal pension.

SIPPs will allow you to select from a range of assets, such as:

-Unit trusts.
-Investment trusts.
-Government securities.
-Insurance company funds.
-Deposit accounts with banks and building societies.
-Commercial property (such as offices or factory premises).
-Individual stocks and shares quoted on a recognised stock exchange.

Again, it comes down to the type of investor you are and what functionality you require. A SIPP may be more suited to an experienced investor who wishes to select their own funds or purchase a commercial property through their pension.

If you simply require funds to be managed in line with your risk and to be low cost then these are usually available within personal pensions.

By necessity, this briefing can only provide a short overview and it is essential to seek professional financial advice before applying the contents of this article. This briefing does not constitute advice or a recommendation.

Answered by

Cecilia Reilly

Financial Planning Consultant

I studied Law and Taxation in Ireland for four years and graduated from Limerick Institute of Technology in November 2011 at which point I moved back to the UK. I started my career in Financial Services in the South East in 2012 and have had various roles over the years from Administrator for Pensions and Employee Benefits to Paraplanning and finally qualifying as a Financial Adviser. I received the Diploma in Regulated Financial Planning in 2017 and have been advising since 2018. I am working towards Chartered status and have completed additional exams in Pension Transfers, Pension Planning and Long Term Care.