Is this a SIPP?

A client asked me this question after I had suggested that they pay a pension contribution to boost their retirement fund. Is this a SIPP?

I could have given a direct and definitive answer; after all the product provider had stuck a label on the particular plan in question.

But I wanted to provide my client with a bit more than just a “yes” or “no” answer.

So I explained that there were a number of different types of personal pension plans and the most common labels that we come across are Stakeholder pension plans, Personal pension plans and Self Invested Pension Plans (SIPPs).

Each of them have far more similarities than differences. For example the contribution rules for each are absolutely the same.

Purists may argue that Stakeholder pension plans have slightly different contribution rules but here I was trying to point out that if my client wanted to pay a single contribution (a significant £35,000 in her case) then all of these types of pension could accept it and the HMRC maximum contribution rules apply in the same way.

Anyone who is eligible for a Stakeholder plan is eligible for a Personal pension plan and is eligible for a SIPP so no difference there then.

The age at which benefits are able to be paid is also consistent across all three types of plan.

The amount of tax free cash is the same for each and the choices about how to convert the pension fund into income are also consistent across the range.

So contribution rules, eligibility, benefit age and benefit types are the same as is the tax treatment of each type of plan.

So what are the differences? There are two of note.

First each type of plan will have different charges that apply.

Some are more expensive an others but don’t fall into the trap of believing that a Stakeholder plan is cheaper than a Personal pension plan and that is cheaper than a SIPP. This is not the case and bizarrely although Stakeholder was launched as a low cost, simple (it never was simple by the way!) product it is no longer necessarily the cheapest.

The second key point of difference is the investment choice that is available to the investor.

Now this is where the real differences lie. Some plans have a limited range of investment choices and others have a great deal of choice.

It is usually held that SIPPs have the greatest range of investment choice but this is not always the case because some SIPPs have restricted investment choice (are they really SIPPs then I hear you ask?) and some Stakeholder and Personal pension plans have a wide investment choice.

Confusing isn’t it?

So the answer I gave to my client was “Yes, it is a SIPP if you want it to be”.

The answer I wanted to give was “Does it matter?”