What is the Best Personal Pension & SIPP?

Some of the providers we feature offer a ‘SIPP’ and some offer a ‘personal pension’. On the surface, they look very similar. That’s because SIPPs and personal pensions share many characteristics:

Both can be invested in financial markets with the aim of producing returns on your investments that allow you to draw an income when you retire and achieve the kind of retirement lifestyle you want.

Both personal pensions and SIPPs qualify for tax relief – 20% if you pay the basic rate of tax. (Higher and additional-rate taxpayers can claim back a further 20% or 25% via the self-assessment process.) For standard rate tax payers, that translates to an extra £20 when you contribute £80, taking your total to £100, and is the tax back that you would already have paid. Tax relief is one of the biggest reasons why pensions are so hard to beat as an investment option.

As both SIPPs and personal pensions involve investing in markets that go down as well as up, both involve risk, including the risk that the value of your pension may fall, instead of rise.

So, what are the differences between the two, then?

The main difference between a SIPP and a personal pension is that with a SIPP, you typically get greater flexibility over your investment options. You’ll usually have a larger pool of assets to choose from and more freedom over exactly how your retirement savings are invested and managed. You may be able to pause or lower contributions as you wish, add in lump sums, and buy and sell lots of different kinds of assets. With a personal pension, decisions about how your pension is invested, and how often you can contribute, may be taken on your behalf, or be more tightly controlled.

Which you choose will probably come down to how much flexibility and control over your pension you ultimately want.

When choosing a personal pension or A self-invested personal pension (SIPP) is a type of private pension that allows you to control the specific investments that make up your pension fundSIPP provider, you should factor in the following considerations:

• Cost
• Choice of assets (does the provider offer what you want to invest in)
• Suitability of the platform for your skill/experience level
• How much help you want making decisions
• Your feelings about risk
• Past portfolio performance – if you wish to invest in a A ready-made portfolio is a pre-made collection of investments that have been put together by investment experts. They are designed to be a simple option for those who don’t want to choose individual stocks or funds for themselves.ready-made portfolio, this will be important

You’ll find details on each of those factors in the mini reviews we feature on this page, but you’ll find them discussed in greater detail in the full reviews for each provider. Before making a final decision, I strongly advise reading the full review.

We’ve conducted our own, independent research into past A self-invested personal pension (SIPP) is a type of private pension that allows you to control the specific investments that make up your pension fundSIPP/personal pension portfolio performance. We chose to analyse those funds that are offered by providers as suggested or ‘starter’ portfolios for those not sure what to choose. The following data is, therefore, not an analysis of every possible fund or ready-made portfolio offered by a provider, but is an analysis of those funds you might refer to as the ‘default’ options recommended by providers.

While this data can be useful in forming opinions on how well funds are managed, it’s important to remember that past performance is not a guarantee of future performance, and that investing for retirement should be seen as a long-term endeavour.

As you can see, personal pensions – where some of the work of choosing and managing investments is done for you – are more expensive overall. A self-invested personal pension (SIPP) is a type of private pension that allows you to control the specific investments that make up your pension fundSIPPs usually involve doing more of the work yourself, so are generally cheaper. The exception to that is Plum which is pricey, particularly if you have a large portfolio. They have historically provided spectacular returns on their recommended portfolios for SIPP investors, however, so you may feel it’s a price worth paying.

For Interactive Brokers, I used the cheapest third party provider accepted by IBKR (Options UK) for the purposes of this table. Alternative providers recommended by IBKR quoted even higher figures to me. The third party fee is a bit of a sting in the tail if you’re investing smaller sums as it’s one flat fee for the example we’ve used. That works out cheap if you have a very large pot to invest, however.

Just because a fund is the cheapest, doesn’t mean it’s the best, or more importantly, the best for you.

The provider needs to offer a solution that works for your current financial circumstances, but it also needs to offer you the best chance of fulfilling your future retirement and financial growth goals. That means weighing up what kinds of assets you can invest in through that provider, how much help they’re able to provide if you’re new and want some guidance on where to invest, and if you opt for a ready-made investment solution, how those funds have been performing. It’s no good finding a cheap A self-invested personal pension (SIPP) is a type of private pension that allows you to control the specific investments that make up your pension fundSIPP if your money sits and stagnates for the next couple of decades, not providing you with the kinds returns you could be getting elsewhere.

Equally, just because a fund is expensive, doesn’t necessarily mean you should strike it off your list – if it’s within your budget, of course. Without doubt, some providers are charging more than they ought to be, and we flag those providers up in our reviews. But there are some providers that are expensive but remain good value for money possibly because of the access they provider to a wide range of assets, sophisticated research tools and trading interfaces, or because they offer ease-of-use, a great app, or a top-performing set of funds.

You must weigh up the full picture when choosing a SIPP/personal pension provider. An important part of that will be costs – but it should also include the type of service provided and how that matches your investing skill and knowledge level, the performance of ready-made portfolios if you don’t want to choose the make-up of your own portfolio, and how much risk you want to be exposed to.

I strongly advise reading the full review for each provider you are considering before making a final decision. And if you’ve got questions for our Insiders team, use our ‘Ask the Insiders’ feature at the bottom of each review.