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The pros and cons of investing in a Sipp

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Investing in a Sipp (self-invested personal pension) can be a tough choice. With the recent controversies surrounding the pensions and the wide variety on offer, many don’t know what they should invest in – or if they should invest at all.

We’re here to break down the pros and cons of investing in a Sipp.

Pension investments

It’s estimated that currently, there are about 1.8 million Sipps in existence in the UK.

While the media has focused on the negatives, which you can read about here, it’s not all black and white. It’s about finding the right investment for you.

Advantages of investing in a Sipp

With the right choices, people will achieve better returns than if the money was left sitting in the bank. For knowledgable and savvy investors, investing in a Sipp can result in a large retirement fund.

The wide variety of options allow the investor to tailor their investment to their own preferences. They can control the level of risk they want, the type of scheme they want to invest in and when to take their money out.

Investing in a Sipp is also a very tax efficient means of saving for the future. It works in the same way as any other pension. The Government will add an extra 20% in basic rate tax relief to contributions made. An investment of £10,000 will only cost the investor £8,000 with the Government making up the shortfall.

A Sipp can also be passed onto the next generation. In the event that the investor passes away, it can pass on to another beneficiary such as their spouse or child. Another added advantage is that it also provides investors with the opportunity to take up to 25% of their pension pot tax free when they are 55 or over.

While the pension type does offer great benefits and freedom, investing in a Sipp isn’t for everyone.

Disadvantages of investing in a Sipp

Sipps are probably best suited to high net-worth individuals who have a good knowledge of the industry sector in which they are investing. These investors can afford to take a hit if things go wrong.

In our experience, many of our clients have been mis-sold Sipps on an execution-only basis, in risky unregulated schemes. The investments were clearly not suitable for them, given that they were not experienced investors. Many also don’t have the financial flexibility to be able to take investment risks.

We have seen a lot of investors joining these schemes having been promised very high returns very quickly. They were unaware that the returns that are promised are often much lower in reality. In some cases, investors may not even get back the money that they have invested.

As the largest Sipp litigator in the UK, we are currently working with more than 10,000 victims of financial mis-selling. The majority of these have a similar story as they were promised a scheme that was too good to be true.

Making the right choice

If investors do decide to transfer their pension and invest in a Sipp it is vital they seek professional advice first. An independent financial advisor will assess their financial circumstances, saving objectives and attitude towards risk.

They will then receive honest feedback as to whether a particular product is suitable for their needs and objectives. It is also important that investors carry out their own research about the investment for their own due diligence. They should find out who runs the company and look into reviews and news on their track record. They should also check the Financial Conduct Authority’s website to check for any warnings.

If you are concerned you may have invested in a Sipp unsuitable for you, get in touch. We can offer the support needed to get your money back.