What are the disadvantages of Sipps Pensions?
This is where the bad news comes: despite their obvious attractions, Sipps are certainly not suitable for everyone and there have already been widespread warnings that another pensions mis-selling scandal could be just around the corner.
You have only got to look at the way some pensions firms have made a fortune out of Sipps selling – telling pension buyers that Sipps are the only game in town.
Once you see that sort of marketing effort, then you know you face mis-selling. And that’s because they’re so eager to push something that makes a big profit for them onto you that they will cut corners if they can.
Result – they get the cream and you want to scream.
So here’s our unbiased guide to the drawbacks.
- You are on your own as far as investment strategy goes. Either you take control or pay someone to do it. If you pay, your costs go up.
- You can open a Sipp with as little as £5,000. Great if you’re young and at the start of your career. That way, you’ll be able to put tens of thousands more in during your life. But rubbish if you are further along the career path. Sipps are simply not a good idea for tiny sums.
- Your costs could be a whole lot greater than a stakeholder. And if you have a money purchase company scheme where your boss picks up the bills, then the Sipps will hit you even harder in the pocket.
- You risk paying two sets of management fees. You will pay for the Sipps wrapper and then you will pay again for the underlying investments that you put into the Sipp.
- The Sipp is not a magic solution to your pensions problems. It is only a personal pension which you can control yourself.
- You could put some very unsuitable investments into your Sipp. And you might forget that you are looking long term so while some forms of punting on commodities are allowed, they could wipe out your pension if you get it wrong.
- You are still held in by rules demanding you buy an annuity when you reach 75.
- You might be tempted to transfer a final salary pension into your Sipp. You can do this but it is never, never advisable (unless you want to take a big bet on your retirement income – and that’s not advisable either!)
Disadvantages of Sipps