A self-invested personal pension (“SIPP”) is the name given to a UK Government approved personal pension scheme. Such a scheme will allow an individual to make their own investment decisions from a range of investments that has been approved by HM Revenue and Customs.
Types of Investment
Investors involved with a SIPP may, subject to the agreement of the SIPP Trustees, make choices as to what assets are bought, sold or leased on their behalf. They may also make decisions about when such assets are acquired or disposed.
All assets are permitted by HM Revenue and Customs, however, certain types of asset will be subject to tax charges.
The types of assets not currently subject to such charges are as follows:
- Stocks and shares listed on a recognised exchange.
- Futures and options traded on a recognised exchange.
- Authorised UK unit trusts and OEIC and other UCITS funds.
- Unauthorised unit trusts that do not invest in residential property.
- Validated carbon credits (VCS and gold standard).
- Unlisted shares.
- Investment trusts subject to FCA regulation.
- Unitised insurance funds from EU insurers and IPAs.
- Deposits and deposit interests.
- Commercial property (including hotel rooms).
- Ground rents (as long as they do not contain any element of residential property).
- Traded endowment policies.
- Derivatives products such as Contract for Difference (CFD)
- Gold bullion that is specifically allowed for in legislation.
Investments currently permitted by primary legislation but subsequently made subject to heavy tax penalties (and therefore typically not allowed by SIPP providers) include:
- Any item of tangible, moveable property (whose market value does not exceed £6,000) – subject to further conditions on use of property.
- Other exotic assets such as vintage cars, stamps, wine and art.
- Residential property.
Unlike conventional pensions, with a SIPP a member may have ownership of the assets (via an individual trust) as long as the scheme administrator is a co-trustee and in a position to exercise control. In practice, the majority of SIPPs do not operate in this way and simply have the provider as a SIPP trustee.
The role of the scheme administrator in this situation is to control what is happening and to ensure that the requirements for tax approval continue to be met.
The pensions industry has now moved towards adopting three industry terms to describe generic SIPPs types:
This scheme is effectively a Personal Pension Plan in which most or all of the assets are generally held in an insured pension fund (although some providers will allow direct access to mutual funds). Self investment or income withdrawal activity is deferred until an indeterminate date. In some newer schemes of this type, there are over 1,000 fund options, so they are not as restrictive as they once were.
This is a scheme in which some assets must always be held in conventional insured pension funds, with the rest being self invested. This has been a common offering from mainstream personal pension providers who require insured funds in order to derive their product charges.
Pure or Full
This scheme offers unrestricted access to many allowable investment asset classes.