SIPPS or annuity?

By THIS IS MONEY
Updated:

 

I AM five years from retirement. Is a self-invested personal pension (SIPP) preferable to a normal personal pension?

Des Hamilton at pensions advisory service OPAS, says: We cannot give you specific financial advice, but SIPPs are often used by people who want more control over the investment of their pension money than is available through a conventional scheme.

SOME people want to invest in specific shares or commercial property (residential property is not allowed). They can only do this with a SIPP. However, the operational costs on SIPPs can be high compared with a conventional scheme such as stakeholder, where the costs are limited to a maximum of 1% of the fund value each year.

As you are only five years from retiring you might not want a high-risk investment strategy or get involved in investments that might be difficult to sell. Much depends on whether you decide to buy an annuity in five years' time or keep your fund invested and use the drawdown approach.

How you invest may determine whether or not you will have that choice when you retire. If you take a high-risk strategy now, you might find annuity rates in five years time to be relatively attractive, but the value of your investments could be depressed. If you are really keen on SIPPs seek independent financial advice.

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