Updated: June 06, 2019

Alternatives to taking out a SIPP

Want to check all of your options before deciding if a SIPP is right for you? This guide compares all the different retirement savings alternatives.

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Tony Stevens

Author: Tony Stevens - Finance Expert

Updated: June 06, 2019

Taking out a Self Invested Pension Plans (SIPP) has risen in popularity since 2015 when new rules were introduced to give individuals greater flexibility with how they access and manage their pension pots.

But is a SIPP the right route to go down? What are the alternatives, and how do the benefits compare for a SIPP vs other options?

What are the alternatives?

Since the Pension Freedoms were introduced in 2015, you are no longer required to buy an annuity or go into income drawdown with your pension fund before your 75th birthday.

There are now countless ways in which you could choose to invest your pension pot, with a SIPP being one of these options. We will now look at other potential alternatives, in comparison to a SIPP.

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SIPP vs personal pension

Standard plans are designed to be a simple and accessible option for those on lower incomes or don’t want the responsibility of being in control of their investments.

Personal pensions can be invested in high risk investments and you can manage them yourself too, and expect potentially high returns.

The most important factors which should dictate your choice between a SIPP or “normal” pension are how much you earn, how confident you are in managing your own investments, and whether you can afford the associated risks.

SIPP vs annuity

Making a direct comparison between these two products is not really possible as a SIPP is about accumulation and an annuity is deccumulation.

An annuity is an insurance contract that insures against you living too long. In return for a lump sum of your pension fund, an annuity provider (insurance company) will give you a guaranteed fixed income for life or for a set number of years.

With annuity rates at record lows at the time of writing, it’s easy to understand why people are tempted by alternatives.

But while you could stand to grow your pension pot considerably with a SIPP, there is also the risk of losing your funds if you make the wrong or risky investment decisions; with an annuity, you are guaranteed a retirement income.

SIPP vs income drawdown

Again, a direct comparison is difficult due to the inherent differences between these two retirement income solutions.

Income drawdown (pension drawdown or an unsecured pension) is where you leave your funds and take an income directly from it, instead of using the money to buy an annuity.

You can usually withdraw up to 25% of funds into drawdown as a tax-free cash lump sum each time, and do with it what you please – including contributing to a SIPP.

SIPP vs company pension

Company pension plans are set up by employers to provide their employees with retirement benefits. Employers are legally required to auto-enrol employees into company pension schemes.

Many people want to know whether they’re better off opting for a SIPP or company pension. While it will all depend on your individual circumstances, it is possible to open up a SIPP alongside your workplace pension – and many people do.

Company pension schemes often have enhanced benefits that are not available with a SIPP, so keeping your workplace scheme alongside your SIPP allows you to reap the benefits of both.

SIPP vs Group Personal Pension (GPP)

GPPs are becoming increasingly popular for employers that have abandoned the standard stakeholder model. GPPs are normally arranged by an employer, and funds administered by a pension manager.

GPP funds are usually invested in stocks and shares, and your contribution will make up part of the wider fund. The fund managers’ intention is to make intelligent investment decisions to grow the value of the fund over time.

If you are offered to contribute to a GPP, it could be a better option than taking out a SIPP if you’re inexperienced or unwilling to take control over your own investments. However, there are still risks depending on how the stocks and shares perform.

SIPP or Additional Voluntary Contributions?

Additional Voluntary Contributions (AVC) are contributions you make to your employer pension to build up additional retirement funds through your workplace scheme.

It can be a tax-efficient method of boosting your retirement savings, because any AVCs you make to your fund, are deducted from your wages before tax.

Making additional contributions into your company pension scheme can be a sensible option if you can afford to do it.

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SIPP vs NHS pension

With NHS contribution requirements as high as 14.5% at the time of writing, penalties if you want to take early benefits, and possible tax charges if it causes you to breach your allowances, it’s easy to see why you may be considering alternatives.

However, NHS schemes have historically offered secure, good value lifetime income, whereas SIPPs can have a lot of risk attached.

What’s more, NHS Pension Scheme benefits can be difficult to replicate elsewhere – such as Ill Health Retirement Pension, Life Cover, and uplifts for the spouse’s pension.

It’s down to you to decide what the best choice is for your situation – get in touch to speak to an expert advisor.

SIPP vs Salary sacrifice

Salary sacrifice refers to when you give up part of your salary and, in return, your employer contributes additional funds to your personal pension on your behalf.

When your employer contributes directly to your SIPP, not only can you save on tax and National Insurance, your employer can too. In some cases, employers may choose to pass some of this benefit onto you.

But not every employer offers salary sacrifice, and what benefits you’ll receive will all depend on your situation – so be sure to check the finer details before proceeding with any scheme.

SIPP vs buy to let investment

While UK buy to let (BTL) investments have been extremely profitable ventures in the past, recent tax changes and new landlord regulations – not to mention the impending political and economic risks – are seeing the BTL sector not perform quite as well as it did.

When you consider the tax advantages of a SIPP, and the stock market listings available for investors who are interested in property exposure, at this point in time a SIPP could be a wiser route to go down.

After all, both ventures come with their own risks, but as it stands, at the time of writing, a SIPP would appear to be the more financially viable decision. Again, it all depends on your individual circumstances and your experience in the fields, and you should absolutely speak to an expert before deciding between the two.

What are the benefits and risks?

A SIPP is a type of defined contribution personal pension, which means the value of your pot when you retire is dependent on how much you pay in, and the performance of your investments.

SIPPs are a particularly common for higher rate taxpayers and more experienced investors. They allow you to choose exactly what you choose to invest your funds in, and you have access to the whole range of higher risk products.

While more flexibility and the prospect of a greater return can be tempting, SIPPs aren’t for everyone. The responsibility of choosing what you invest in lies entirely with you, so you’ve got to have the know-how, and be aware of the risks.

Speak to a pensions expert

If you want more information on SIPPs or any of the other investment schemes mentioned above, call us today on 0808 189 0463 or make an enquiry.

Then sit back and let us do all the hard work in finding the pension advisor with the right expertise for your circumstances. We don’t charge a fee, and there’s absolutely no obligation.

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We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions. Ask us a question and we'll get the best expert to help.

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Tony Stevens

Tony Stevens

Finance Expert

About the author

Tony has worked in a vastly diverse array of areas in the pensions industry for over 20 years. Tony regularly writes for trade press, usually on topical and pensions pieces as well as acting as a judge at prestigious national events.

Tony is also a highly qualified Independent Financial Adviser in his own right. His mantra has always been “Hope for the best, but plan for the worst”, and believes that the biggest impact that an adviser can have on a client’s life journey is to take them on a journey from generally having little or no real idea of what their retirement will look like, to giving them the understanding of what their retirement looks like now, then helping them navigate a path to what they want their retirement to be.

FCA Disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

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