A SIPP is simply a 'do-it-yourself pension'. You choose what investments to go for and where to put your savings. You can often do this with minimum effort with many websites existing where you can manage it all online, in a similar way to an online banking portal.
Taking control of your pension by investing in a SIPP can be satisfying as well as rewarding in a financial sense. You also don't need to be 'rich' to be able to invest, with many options now available
SIPPs can be broadly classed as one of three types:
Full SIPPs: These offer the widest choice of investment options, but they also have the highest charges and are therefore only really beneficial to those with fairly large pension funds. The average sum of investment for a full SIPP is between £150,000 - £450,000.
Fees: Normally fees will be set at a flat rate percentage of the investment. Some providers charge an initial set-up fee, as well as an annual management charge (around 1% for a £50,000 pension). You will generally find that there is a minimum contribution per month
Low-cost SIPPs: These do offer a wide range of investment options, but excluding direct property ownership, offshore funds and investing in unquoted shares. They're primarily targeted at those with smaller pension pots, or those making smaller contributions. You don't get any advice from the provider, and low cost SIPPs are 'execution only'. As a knock on effect, this makes the costs lower for customers. Generally speaking you'll pay up to £15 for processing online trades and telephone trades are set at a rate of about 1% commission
Fees: Unlike full SIPPs, there shouldn't be any set-up charges for a low cost SIPP, with the exception of low cost SIPPs for investment funds. The admin costs for any share transactions are low, but can stack up if you end up chopping and changing shares too often.
Hybrid SIPPs: Otherwise known as 'insurance' SIPPs, as this variety is only offered by insurance companies. These are quite high-cost and require a large amount of money to be paid in before you gain control in choosing your own assets. These might be an option for those nervy about choosing their own investments, but a better option would perhaps be to go for a full SIPP, with the help of an enlisted financial advisor
Fees: There are no dealing fees for trades, and set-up costs are normally capped between £300 - £600
Like all pension schemes, SIPPs are eligible to be tax free up to a rate of 45%. Stocks and shares Isas are equally as tax efficient, but have and annual contribution cap of £15,240. If you're looking to invest more than this each year (up to a maximum of £40,000), then investing in a SIPP is likely to be the best option for you. As always though, consult a financial advisor before making any commitments.