Retirement Planning

There are generally three categories of personal pensions as far as investment is concerned.

Stakeholder Pensions

With Stakeholder pensions, there is a maximum annual charge of usually 1% (although new plans may charge up to 1.5% for the first ten years) and a limited range of pension funds from which to choose, generally restricted to those offered by the pension provider.

These will usually be favoured where charges are of most importance in a clients pension planning.

Self Invested Personal Pensions (SIPPs)

At the other end of the spectrum are Self-Invested Personal Pensions (SIPPs). In contrast these allow access to literally hundreds of funds offered by any number of fund management groups and clients may also invest directly in shares. Investment decisions may be made by clients themselves or by reference to a financial adviser or stockbroker.

SIPP fees do tend to be much higher than for Stakeholder policies with set up costs ranging between £300-£600 (although you are able to access SIPPs with lower and higher charges, with annual fees of similar levels for example for online only access SIPPs). Other costs may be incurred for investment transactions undertaken within the SIPP relating to the buying and selling of unit trusts and shares, for example and the employment of financial and/or stockbroking advice.

SIPPs are also appropriate where property investment is being considered, although not for direct residential property, which has effectively been made prohibited due to the tax charges that would apply.
           
In conclusion, we believe SIPPs are most useful where there is a significant fund accumulated, thus making the charges proportionately acceptable, and where a wide range of investment choice is required.

Non Stakeholder Pensions

A ‘middle ground’ that is proving popular is that of the ‘wrapper’ concept. These plans offer access to a wider range of funds, both in house managed funds and those offered by a multitude of other external investment houses. These may not offer quite the investment diversification that Self Invested Personal Pensions (SIPPs) can but generally strike a happy medium between the two extremes of Stakeholders and SIPPs for an acceptable cost above the charges of a Stakeholder product.

Whichever pension vehicle is utilised to undertake retirement planning, the underlying tax treatment remains the same. Furthermore, investment into any pension may be undertaken either personally or via an employer.