So many SIPP options. Where do I begin?

10 March 2021

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Question by Tom

I am currently focusing on saving for my retirement. I am 38, self employed with a Buy to Let property, a Nutmeg LISA and a basic state pension. I am interested in starting a SIPP to boost my pension investment. The problem is that there are just so many options and I don't know where to begin. I have looked at all the different products and am just blinded by weighing up all the fees and benefits of managed / non managed investments. I hear what you say about utilizing a managed SIPP as a newcomer to trading but on the other hand is this worth doing if I'm incurring higher fees?


Answered by Daniel Wiltshire

Hi Tom

I completely understand your confusion – there are so many options and so much jargon, it can all seem quite overwhelming.

When selecting a financial ‘product’ the first question to ask yourself is “what is my objective?”. If your objective is to save for retirement, SIPPs (and pensions more generally) can be a great way to do this. In particular, contributions will receive income tax relief at your marginal rate. So for example - if you’re a basic rate income tax payer – for every £100 you contribute from net income, you’ll receive £125 in your pension. Additionally, there will be no tax due on gains made whilst the pension remains invested. And when you come to draw an income (from minimum age of 57 in your case, based on the current rules) you will receive 25% tax free, with the rest being taxed as income. These tax benefits are one of the main reasons pensions are such a popular way to save for retirement, particularly for higher and additional rate income taxpayers.

Lifetime ISAs (LISAs) also have tax benefits and can be either be accessed (from age 60) for retirement, or for a deposit on a first home (subject to eligibility criteria, limits and restrictions). Unlike a pension it is still possible to withdraw the money for other reasons but will be subject to a 25% penalty charge (from 6th April 2021). 

Unfortunately – in your situation - as you already have a property you will be unable to use your LISA to purchase another property (without paying the 25% charge). So whether or not a pension or LISA is best for you will depend on your personal tax position and when you wish to access the money.

Finally, which funds to choose? Again, there are so many options, but you’re right to be mindful of fees. Broadly, there are two main approaches to fund management: “active” and “passive”. Active funds employ a fund manager to try and outperform the stock market, whilst passive funds aim to track a particular benchmark. Typically, active funds are more expensive and there is much debate as to whether these extra fees are likely to be recouped through superior performance over time. Both approaches are available to newcomers and experienced investors alike – which is right for you will come down to your personal investment philosophy.

I’m afraid I can’t be more specific without a better understanding of your personal circumstances and objectives, but I hope this helps.

Answered by

Daniel Wiltshire

Independent Financial Adviser

I’ve worked in finance for 15 years, initially training and qualifying as an actuary before becoming a financial adviser. I set up my own independent practice, Wiltshire Wealth shortly after moving from London to Bradford on Avon with my young family in 2017.