A number of advisers have contacted us recently to clarify the benefits of using a SIPP rather than a Personal Pension.
From our research (mainly on the offerings by Transact), the main difference between the two schemes are:
- A SIPP is an uninsured pension scheme, whereas the Personal Pension is insured.
- As the SIPP is not insured it doesn’t need to adhere to the FCA Permitted Links rules. A wider range of investments is therefore available in the SIPP compared to the Personal Pension.
- Clients with a SIPP can invest into Unregulated Collective Investment Schemes (UCIS) without restriction. For the Personal Pension investment into UCIS is limited to a total of 20% of the pension value at the time the investment is purchased.
- Another difference between the SIPP & Personal Pension is in respect of the compensation that the Financial Services Compensation Scheme (FSCS) would pay should the product provider become insolvent.
- For the SIPP, the maximum compensation limit is £50,000.
- For the Personal Pension, the maximum compensation limit is 100% of the pension
value. - The charges on a SIPP are generally more expensive than on the Personal Pension although in the case of Transact, for example, the charges on the two plans are the same.
In summary, if you are looking for property purchase or a wider range of investments, a SIPP may be the preference although charges would need to be considered.
If a standard investment where the preferred investment strategy is available on the SIPP and the PP and there is little or no difference in the charging structure, then the PP would be more advantageous because of the higher level of client protection offered by the FSCS
