SIPPs Invest: What Are Your Choices?

SIPPs allow for a wide range of investment options, including stocks, bonds, mutual funds, and real estate. This versatility enables investors to tailor their retirement portfolio to their risk tolerance and financial goals.
  • Last Updated: 22 Mar 2024
  • Fact Checked
  • Our team recently fact checked this article for accuracy. However, things do change, so please do your own research.

Contributors:

Francis Hui
Uncover Permissible Investments, Understand the Restrictions & Get the Lowdown on SIPP Property Rules. Dive in for a Comprehensive Look at Where Your Money Can Work Best.
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Key Takeaways
  • SIPPs allow a vast range of investments including mutual funds, shares and bonds, real estate, and commercial property, among others.
  • It can come with certain restrictions; notably, you cannot invest directly in residential property or certain types of tangible assets like antiques or artworks.
  • Commercial property is a permissible investment, providing potential tax advantages and diversification benefits.
  • When choosing investments, consider factors such as your risk tolerance, investment goals, time horizon, and the asset’s potential returns and liquidity.
  • SIPPs can definitely invest in stocks and shares, which can offer growth potential and dividends.

When considering a Self-Invested Personal Pension (SIPP) as part of your retirement strategy, it is important to find out what SIPPs can invest in

Although investment options vary by SIPP provider and individual SIPP plans, SIPPs offer versatile options when it comes to diversifying your retirement funds, ranging from stocks and shares to commercial property, bonds, and ETFs.

In This Article, You Will Discover:

    At Every Investor, we take pride in bringing our readers the most reliable and up-to-date information on retirement products like SIPPs. 

    All our content undergoes extensive quality and compliance checks before publication. 

    Read on as we take a deep dive into the world of SIPP investments.

    What Is a SIPP?

    A SIPP, or Self-Invested Personal Pension, is a type of pension plan available in the United Kingdom.

    It provides individuals with greater autonomy and control over their retirement savings by allowing them to choose and manage a diverse range of investments, such as stocks, bonds, and property, within their pension fund.

    SIPPs offer a self-directed approach to retirement planning, allowing individuals to tailor their investment portfolio based on their financial goals and risk tolerance.

    What Are the Best Equity Release Companies in the UK?

    Determining the best equity release companies in the UK is subjective and largely depends on the needs of the individual. However, some consistently high-rated companies include Aviva, Legal and General, and Pure Retirement.

    Each of these companies offers competitive rates, flexible payment options, and excellent customer service records. They also provide a range of equity release products, including lifetime mortgages and home reversion plans, thus catering to diverse needs. It’s worth noting that More 2 Life and OneFamily are also highly regarded in the industry.

    These companies offer innovative products such as interest-only lifetime mortgages, giving customers more control over their finances. Regardless of the company you choose, we recommend seeking independent financial advice to ensure you’re making the most informed decision.

    As experts in the field, we understand the importance of finding the right fit for your financial future.

    Which Types of Investments Are Permitted in SIPPs?

    The types of investments permitted in SIPPs will usually differ depending on your provider, but there are some basic guidelines to keep in mind. 

    Self-Invested Personal Pensions (SIPPs) are known for their flexibility and the wide range of investment options offered as part of these products.

    A brief overview of the main investment options that SIPPs provide:

    1. Stocks and shares: invest directly in various domestic and international companies.
    2. Funds: invest in a range of collective investments like unit trusts, investment trusts, and open-ended investment companies (OEICs).
    3. Exchange Traded Funds (ETFs): invest in ETFs, which are funds traded on stock exchanges.
    4. Bonds: invest in both government bonds (gilts) and corporate bonds.
    5. Property: invest in commercial property and land; please note that residential property is typically excluded from SIPPs.

    It may be useful to take a quick look at these investment types.

    Shares & Corporate Bonds

    SIPPs allow investments in shares (company ownership units) and corporate bonds (loans with interest). 

    Both UK and international options exist. 

    Government Bonds

    Government bonds are known as ‘gilts’ and represent loans granted by the government that are repaid with interest over time.

    Unit Trusts & Open-Ended Investment Companies (OEICs)

    OEICs are collective investments that pool money from many investors to buy a diversified asset portfolio. 

    Investment Trusts

    Investment trusts are publicly listed companies that use pooled investor funds to invest in a diversified range of assets. 

    Property & Land

    Property and land investments involve buying commercial real estate. 

    ETFs & ETCs

    ETFs (Exchange Traded Funds) track an index, sector, commodity, or asset class and trade on the stock exchange. 

    ETCs (Exchange Traded Commodities) do the same thing, but with a specific focus on commodities. 

    Keep in mind

    Although SIPPs offer a lot of flexibility, they also carry risks.  

    These potential risks include:

    • Complexity of investment choices.
    • Potential for lower returns.
    • Reliance on individual management.
    • Higher fees and charges.
    • Risk of significant market losses.
    • Need for active involvement and decision-making.
    • Possible tax implications.
    • Subject to general investment risks.

    Speak to your pensions advisor to find out how to weigh up the pros and cons of investing in a SIPP.

    Can I Invest in Shares With SIPPs?

    Yes, you can invest in shares with SIPPs. 

    SIPPs provide a flexible way to invest in shares, making them a favourite choice for investors looking to build a diverse and tailored retirement nest egg.

    UK & Overseas Shares

    SIPPs give you the ability to invest in a wide array of companies both in the UK and overseas, allowing you to diversify your investment portfolio geographically.

    Risks & Rewards Tied to Share Investments

    Investing in shares carries both potential risks and possible rewards. 

    The rewards can include capital growth and dividends, but the risks include market volatility and loss of capital. 

    Can You Hold Private Company Shares in a SIPP?

    Holding private company shares in a SIPP is possible, but subject to provider rules and conditions.

    This route also presents potentially higher risks owing to a lack of liquidity and transparency.1

    HMRC regulates these complex rules.

    Can I Invest in Bonds With SIPPs?

    Yes, you can invest in bonds with SIPPS. 

    In fact, bonds are a staple within many Self-Invested Personal Pensions. 

    Understanding Government Bonds

    Government bonds are loans that you make to the government, which they promise to repay with interest after a certain period (i.e. upon the maturity date). 

    These are generally considered lower-risk investments, as it is taken as unlikely that a government would default on its loan repayments.2

    Corporate Bonds & SIPPs

    Corporate bonds issued by companies resemble government bonds, and their risk and return profile depends on a particular company’s financial health. 

    While SIPPs allow these bond investments, understanding their risk-return profile is crucial.

    Can I Invest in Funds With SIPPs?

    Yes, you can invest in funds with SIPPs.

    SIPPs provide a wide platform for investing in funds, allowing investors to pool resources and diversify their portfolios.

    Unit Trusts

    Unit trusts combine funds from multiple investors to purchase a variety of assets, with each investor buying units representing parts of the fund.

    OEICs

    Open-ended investment companies (OEICs), similar to unit trusts, operate as companies where investors buy shares instead of units.

    The Role of Fund Managers

    A fund manager oversees trusts and OEICs within a SIPP, making asset decisions for clients to align with the fund’s objectives and risk. 

    This enables investors to have a diversified portfolio without managing individual investments.

    Are There Rules About SIPP Property Investments?

    Yes, there are rules about SIPP property investments.

    These rules govern the types of property that can be included in Self-Invested Personal Pensions.

    Commercial Property

    A SIPP can hold commercial properties like offices, shops, and industrial sites, and can also borrow funds for property purchases within set limits.

    Restrictions on Residential Property

    Residential properties like houses and flats usually cannot be directly held in a SIPP and may trigger hefty tax charges if included in these products. 

    However, some collective investment schemes may allow indirect exposure to this type of property within a SIPP.3

    Understanding Property Funds

    Property funds, investable via a SIPP, allow investors to tap into the property market without direct purchases. 

    These funds may cover both residential and commercial properties based on the fund’s emphasis. 

    However, this option might carry risks like potential fund suspension periods, which may affect trades.4

    How Do ETFs & ETCs Work in SIPPs?

    How ETFs and ETCs work in SIPPs can be simple enough to understand if you focus on the basics. 

    The Basics of ETFs & ETCs

    The basics of ETFs and ETCs include the fact that ETFs track an index, sector, commodity, or asset class, and that ETCs are similar to ETFs but have a special focus on commodities.

    What to Know About ETFs (Exchange-Traded Funds):

    • Diversification: ETFs offer exposure to a wide range of assets, helping to spread risk.
    • Liquidity: ETFs are traded like stocks, offering higher liquidity compared to traditional mutual funds.
    • Cost-Effectiveness: These products generally charge lower fees than actively managed funds.
    • Transparency: ETF holdings are typically disclosed daily.
    • Tax Efficiency: ETFs are often more tax-efficient than other fund types because of their unique structure.
    • Market Exposure: These products allow you to invest in various sectors, commodities, or indices.
    • Potential Risks: Market risk and tracking errors can affect performance.

    What to Know About ETCs (Exchange-Traded Commodities):

    • Commodity Exposure: ETCs provide direct exposure to commodity prices without owning physical commodities.
    • Diversification: These products are useful for diversifying a portfolio beyond traditional asset classes.
    • Liquidity: ETCs are traded on stock exchanges, allowing for easy buying and selling.
    • Price Volatility: Commodity prices can be more volatile, influencing ETC values.
    • Tax Considerations: ETCs undergo different tax treatment than stocks and bonds.
    • Counterparty Risk: Some ETCs are structured as debt notes, bearing counterparty risk (i.e. the risk that a financial institution may default on its obligation to investors).
    • Inflation Hedge: Commodities can act as a hedge against inflation.

    Risks & Benefits

    Like all investments, ETFs and ETCs carry risks but also potential benefits. 

    The benefits include:

    • Diversification: Spreads investments across various markets and sectors
    • Flexibility: Traded on stock exchanges, allowing for buying and selling flexibility
    • Accessibility: Offers exposure to hard-to-access markets, sectors, and asset classes

    The risks of investing in ETFs and ETCs include:

    • Value Fluctuation: Values can rise or fall based on the performance of the underlying assets
    • Provider Risk: ETF or ETC providers might go out of business

    Always understand the relevant risks before choosing your SIPP investments. 

    Consider seeking advice from a qualified financial or pensions advisor, and do thorough research of your own.

    Which Investments Are Restricted or Prohibited Within SIPPs?

    Investments that are restricted or prohibited within SIPPs usually include tangible assets and unregulated investments. 

    Understanding the Restrictions on SIPP Investments

    While SIPPs are flexible, SIPP investment restrictions are put in place to reduce risk exposure. 

    The range of permitted investments varies by provider, with some offering only funds and others allowing assets like individual stocks.

    Prohibited Investments

    Investments in residential property, loans, and certain types of business assets tend to be prohibited within SIPPs. 

    The following investments are typically prohibited in SIPPs:

    • Residential Property: Direct investments like holiday homes or buy-to-let apartments are prohibited.
    • Tangible Assets: Items such as fine wines, antiques, and classic cars are not allowed.
    • Loans: SIPPs are not allowed to lend to members or specific related parties.
    • Non-Standard Investments: High-risk, unregulated schemes, and hard-to-value assets are excluded.

    Always check with your SIPP provider or seek financial advice if you are not sure about a particular investment.

    What is The Importance of Diversification in SIPP Investments?

    The importance of diversification in SIPP investments is always emphasised, as spreading your risk across different assets can help manage your exposure and maximise the potential returns delivered by your SIPP.

    The Role of Diversification

    Diversification spreads your investments, ensuring that if one falters, others may offset the losses, safeguarding your portfolio from major single-sector downturns.5

    Strategies for Diversification

    Diversification strategies range from mixing asset classes to geographical diversification. 

    Here are some strategies for diversification:

    • Distribute investments according to risk and goals.
    • Spread your exposure across sectors like healthcare and tech to reduce specific risks.
    • Invest across various regions to limit single-country economic risks.
    • Periodically adjust your portfolio to make sure you are appropriately exposed.
    • Use mutual funds or ETFs for built-in asset variety.

    Remember, the right diversification strategy depends on your individual circumstances, and it is always wise to seek the advice of a qualified financial or pensions advisor.

    Important

    Diversifying your SIPP portfolio does not completely eliminate risk, and not all diversification strategies may be suitable for every investor.

    Common Questions

    Are Government Bonds a Viable Investment for a SIPP?

    Can I Invest in Overseas Shares With a SIPP?

    What Are the Risks & Rewards of SIPP Investments?

    What Are the Risks & Benefits of Corporate Bonds in a SIPP?

    How Can I Decide the Right Mix of Investments for My SIPP?

    What Are the Best Investments for SIPPs?

    Are There Restrictions on SIPP Investments?

    Can SIPPs Invest in Commercial Property?

    How to Choose Investments for Your SIPP?

    Can SIPPs Invest in Stocks and Shares?

    In Conclusion

    Ultimately, the choice of investments in a SIPP should align with the investor’s financial goals, risk tolerance, and investment horizon. 

    Whether you decide on direct company shares, government bonds, or property funds, the flexibility of SIPPs means they can accommodate a wide array of investment strategies, but it remains crucial to navigate these options with a clear understanding of the associated risks, such as market volatility, higher fees, and the need for active management. 

    So, when considering a Self-Invested Personal Pension, remember to ask ‘What can SIPPs invest in?’ before deciding where to put your money.

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