SIPP or Stakeholder Pension?

A Self Invested Personal Pension (SIPP) has become a popular alternative to traditional personal or stakeholder pensions as many are under the impression that they can grow their pension pot more than a normal pension could. But as appealing as the prospect can be, SIPPs aren’t for everyone.

The good news is that the pension specialists we work with are experts when it comes to SIPPs vs stakeholder pensions, and can give you the right advice on which is the best option for your needs and circumstances.

This article is going to cover stakeholder pensions vs. SIPPs, the advantages and disadvantages of each, and the process of transferring your stakeholder pension into a SIPP if you decide this is the right option for you.

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What’s the difference between a SIPP and a stakeholder pension?

A SIPP is a type of personal pension that allows you more control and flexibility over how your pension pot is invested.

Whereas a standard stakeholder or personal pension can limit your options, a SIPP offers a greater number of funds to choose from, as well as the opportunity to invest in a wider variety of assets.

Stakeholder pension advantages and disadvantages

Stakeholder pensions were introduced in 2001 as a simple option incorporating minimum standards set out by the government.

This scheme is designed to be a simple, cheap and accessible option for those on lower incomes.

The advantages include:

  • Stakeholder schemes have to offer a default fund option made up of low-risk investments, making it a good choice for inexperienced investors.
  • You receive tax relief on the contributions you make, even if you don’t pay tax. The tax relief forms part of your annual limit and you can contribute up to £2,880 a year, which is topped up to £3,600.
  • Anyone can pay into your stakeholder pension – for example, parents or grandparents have the option to save into a pension scheme on behalf of their children or grandchildren.
  • Stakeholder pension schemes cannot penalise individuals for stopping their contributions or transferring to another scheme – good for those who have an inconsistent income or can’t afford monthly contributions.

The main disadvantage are:

  • There are limited investment choices available to you.
  • Because stakeholder pensions are designed to be straightforward, they generally only include low- to medium-risk investments, meaning your potential returns are likely to be lower than that of other personal pension plans.

For an experienced investor who wants control over their finances, a more flexible scheme may be more appropriate.

SIPP advantages and disadvantages

SIPPs are a particularly common option for higher rate taxpayers, as well as those who already have investment ISAs.

Advantages include:

  • You have the flexibility to choose exactly what you want to invest in – from shares and investment trusts, to gold bullion and commercial property, but it does mean that the responsibility of choosing the funds lies with you.
  • As with all investments, the more risk you take, the better the returns can potentially be. But while hefty returns are appealing, there are no guarantees with a SIPP, and it will all come down to your investment choices.
  • While some SIPPs can be expensive compared to other forms of pension scheme, there are more and more “lower cost” options appearing on the market due to high demand.

Disadvantages include:

  • Charges imposed on SIPP investments tend to be higher than those of other personal pension plans.
  • Due to the diversity of SIPP plans, some can have confusing and expensive charging structures.
  • Unlike stakeholder pensions, you will usually incur a charge if you stop or change your contributions.

Can I transfer my stakeholder pension into a SIPP?

Yes, this is certainly possible. If you decide to opt-out of your stakeholder pension, you usually have the option to transfer them to another plan.

Most schemes will allow you to transfer your funds to another pension pot, which could be a SIPP, a different personal pension plan, or a new employer’s workplace scheme.

If you decide to transfer your stakeholder pension to a SIPP, do make sure that you are comfortable in selecting and monitoring your own investments, and bear in mind the associated risks.


Speak to a pensions expert

If you want further advice on whether a SIPP or stakeholder pension is the right option for you, 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.

We can arrange a free pension review for you today

70% of customers who have a pension review find a better deal

We can arrange a free pension review for you today

70% of customers who have a pension review find a better deal

Author:
Tony has worked in a vastly diverse array of areas in the pensions industry for over 2 decades. 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.

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