According to independent financial research company Defaqto, Self Invested Personal Pensions vary widely in terms of the investment types they permit, particularly in relation to alternative investments – therefore, when looking to invest in a SIPP, it is important for people to focus on what asset classes the tax wrapper will be able to incorporate to ensure they select a product that is able to meet their investment needs.
People have differing attitudes to risk and investment requirements and, likewise, SIPPs vary in the investment types they allow people to put into the tax wrapper.
In particular, although the proportion of pure SIPPs allowing traditional investment types is generally high, Defaqto data shows that there is notable variation in how many permit alternative investments:
- Unit Trusts and OEICS: % of SIPPs permitting investment: 99%
- UK stocks and shares: 96%
- Investment trusts: 94%
- Exchange Traded Funds- 93%
- Offshore mutual funds: 91%
- Hedge funds: 88%
- Futures and options: 75%
- Commercial property: 61%
- Multi-member commercial property investment: 57%
- Third party lending: 51%
As a result – although fees will always play a role in which SIPP someone chooses - it is more important for them to focus on the investment range and flexibility permitted to ensure they choose an investment vehicle that meets their needs.
Defaqto’s Star Ratings for SIPPs aim to help people understand how they compare in terms of the level of features and benefits that they offer. Taking a wide range of elements into account, Defaqto has given each SIPP on the market a rating from 1 to 5 depending upon how comprehensive it is.
Andy Leggett, Defaqto’s Insight Analyst for Wealth Management, said:
“SIPPs are becoming increasingly popular vehicles for retirement planning. However, the key aspect of a SIPP is the investment flexibility it gives an investor – and our data shows that there is wide-ranging variability between SIPPs in terms of the investment types they allow.
"This is particularly true when it comes to less traditional asset classes, such as commercial property and third party lending.
“This underlines the importance of investors focusing on and understanding features when selecting a SIPP, to ensure they will be able to achieve the investment mix and flexibility they require through the product they choose. Although important, fees should not be the primary basis for comparison.
"Our Star Ratings help people understand the level and range of features that different SIPPs offer. The key is for people to look for the right level of SIPP for their particular circumstances.”
Some key elements to consider when selecting a SIPP include:
- Is there a minimum investment in insured funds required?
- In specie terms (the ability to transfer investments into a SIPP without a sell & buy transaction)
- Does the SIPP permit you to select the discretionary fund manager of your choice?
- Does the SIPP permit you to select the platform or fund supermarket of your choice? (typically an adviser decision)
- The range of different asset classes that the SIPP will permit
- Do you need access to specialist investment types?
- Whether you expect to qualify for flexible drawdown
- Whether the SIPP permits ad hoc drawdown withdrawals
