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Understanding Self-Invested Personal Pensions

If you are a pension saver, you know that investing in your retirement is important. But which SIPP investments options should you choose?  

For many years workplace pensions were the primary retirement savings schemes. They were provided by larger companies to attract and retain staff. Although recent legislation requires that all companies enable employees to be enrolled in a pension scheme. Self-invested personal pensions were introduced in 1991 to allow investors more control over their pensions. The main change came in 2006 when the range of investment options for SIPPs was widened considerably. Everyone was able to contribute to both a company pension plan and a SIPP.

What is a SIPP?

A SIPP is a self-invested personal pension. You get to decide how much you put in and where it is invested. SIPPs have substantially opened up the pension market. The breadth of investments that can be made into the SIPP should allow investors to choose a range of assets that suit their retirement requirements.

How much can I invest in my Pension?

There is no limit to how much you can put into your pension annually. However, there is a tax-free allowance of up to £40,000 and this can all be invested in a SIPP. The UK government provides 25% tax relief on pension contributions, so £32,000 would be from your income and the remaining £8,000 from tax relief. This rises to 45% for additional-rate income taxpayers.

What can I invest my pension in?

Before 2006, the selection of investments allowed in a SIPP was limited to shares, commercial property and bonds. Pension simplification came into effect on 6 April 2006. This enabled a broader selection of investments in SIPPs. Since then unquoted investments, loans, and even assets you own can be bought by the SIPP. You could buy agricultural land, a hotel, invest in a hedge fund or offshore funds, Real Estate Investment Trusts or gold bullion.

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Shares, bonds and other financial instruments

Probably the most common SIPP investments are stocks. These can be chosen specifically and invested directly by buying the shares within the SIPP vehicle. They can also be part of a basket of shares like a unit trust. The level of autonomy that SIPPs afford is a key attraction for many investors, but it does require a high level of knowledge and management. As you are in charge of the investment decisions, the mandate to buy and sell the shares comes directly from you. If the shares perform badly then it will impact the value of your pension pot.

Is my SIPP at risk?

It is prudent to spread the risk level and load across a selection of shares to avoid too much volatility. However, this also requires knowledge of the markets and company performance. A unit trust or fund that consists of a selection of shares can smooth the risk for investors who want to surrender some autonomy of choice.


Dealing shares involves commission charges which should be factored into your investment decisions. As with any investment, stocks can go down (the coronavirus outbreak sent markets into a nosedive), or up (the recovery from the pandemic slide has been quick considering the steepness of the fall). This may affect the value of your SIPP depending on how close you are to retirement.
SIPP Gilts bonds, Investment Trusts & Exchanged Traded Funds


SIPPs can also be invested in gilts and bonds, open-ended investment trusts, and exchange-traded funds, all through a SIPP provider that allows these investments. Not all SIPP providers will offer the full gamut of investment options so it’s worth checking before signing up.

Can you include property in your SIPP?

You can invest in commercial property within a SIPP, owning a pub, shop, a care home or factory for example. Rules allow you to borrow up to 50% of the net fund value of your SIPP. So, rent on the property can either be used to pay down any borrowing costs or to invest in other assets within the SIPP. Some people choose to buy their own commercial premises within their SIPP, securing the property and paying the rent to their SIPP.

SIPP and residential property

It is legal to invest directly in residential property through a SIPP. Just be aware there are punitive tax charges (55%) that make it financially inadvisable. Instead, you can invest in a residential property fund like a Real Estate Investment Trust (REIT).

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Gold bullion Pensions

Gold is the only physical commodity that can form part of your SIPP portfolio and has been an investment option since 2014. Like most of the investments within a pension fund, gold appreciates free from capital gains tax. The requirements for including gold in a SIPP are that it must be in the form of a bar or wafer. Also, its purity must be not less than 99.5% and it must be held (usually by a third party) in a secure environment like a vault.

Why include gold in your SIPP?

The reasons to own gold in a pension fund are similar to investing in gold outside of a pension, but these reasons are amplified as you near retirement. Investing in gold is a way of diversifying your assets, ensuring that the volatility of the markets and other asset classes is balanced by a selection of different investments. Gold has long been seen as a safe-haven asset, rising over the long term, and maintaining its buying power through the centuries. Physical Gold usually rises when other assets are in decline. Cautiously wise investors flock to safe-haven gold in times of extreme volatility. Gold is often used as a hedge against inflation because its value usually rises alongside the cost of other goods.

Protect your pension wealth

Safe-haven gold is especially useful in a SIPP when approaching retirement. As you near retirement, there is less time for your portfolio to recover if the markets dive. Not all SIPP providers enable gold investment, so it is important to check the parameters of your provider before choosing your SIPP.

Self-invested personal pensions have allowed confident investors to make their own decisions about where to invest their pension assets. The wide range of options makes diversification easy, and the safe-haven options like gold allow investors to balance their risk.

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