Taking charge of your pension

SIPPs help you to take charge of your pension and provide wider investment choice

Do you feel let down by the performance of your pension? Think you could do better? Self-invested pension plans (SIPPs) could be the answer.

SIPPs provide a DIY opportunity to tailor your pension to suit your needs. They allow you to hold and switch between a wide variety of investments - from managed funds such as unit and investment trusts, to individual shares, gilts, savings accounts and even property.

As with other forms of pension saving, the Government tops up your contributions by paying income tax relief into your SIPP.

Here are the main points to consider if you think SIPPs are for you:

1. The investments you can choose from depend on those offered by the SIPP provider. If you are uncertain which are right for your investment strategy, you should consult an independent financial adviser.

2. The amount you save into your SIPP forms part of your annual maximum pension contributions allowance (under the new legislation this is a maximum of £215,000 per annum or your annual salary, whichever is the greater).

3. Not all SIPPs are the same. 'Bespoke' SIPPs offer the widest investment choice, including property. 'Hybrid' SIPPs, run by insurers, offer a combination of the insurer's own funds and a limited range of others and may allow property, while low-cost SIPPs tend to offer only investment funds and equities.

4. Costs vary hugely. Initial charges on bespoke SIPPs can come to more than £500, and annual charges to more than £1,000. Dealing charges are levied by the SIPP provider for buying and selling investments, such as shares and unit trusts, within the SIPP.

Hybrid SIPPs may levy a setup and annual charge (these are usually less than for bespoke SIPPs), while low-cost SIPPs tend not to. Dealing and fund charges will also apply on making investment changes in both types.

5. Commercial property may be bought within the SIPP if the provider offers the facility. This is especially useful for the self-employed as the business premises can be bought and rental income received tax-free. When the property is sold, there is no capital gains tax liability.

Important notice: The Government has scrapped its previously announced intention to allow residential property, such as holiday homes and buy-to-let flats and houses, to be held with SIPPs.

6. Tax relief applies to SIPP contributions. A higher rate taxpayer need only invest £6,000 in their SIPP to gain £10,000 of investment, as the Government tops up the other 40% by paying the tax relief. Basic rate tax payers get relief at 22%.

7. As SIPPs are personal pensions, you are allowed to start taking benefits at 50 (this is due to rise to 55 over the next five years).