With the right investor, SIPP investments can be incredibly rewarding ventures and there are a variety of investments you can make through a Self-Invested Personal Pension scheme.
However, as mentioned above it takes the right kind of investor to reap the rewards of SIPP investments. You need to be realistic and informed about the level of risk, as well as cautious regarding the amount you plan to invest. All this starts with getting the right information (our blog section is a brilliant place to start).
Here’s an overview of what investments you can put in a SIPP.
But first, what is a SIPP?
To better understand the kinds of investments you can make through a SIPP, it helps to understand how SIPPs themselves work. SIPP schemes enable you to control investments on your own and at your own volition. Introduced in 1989, the UK government saw SIPPs as a way for pension savers to take full control of their pension pot.
They’re essentially a personal pension and offer a broader selection of investment opportunities than group or occupational pensions that many are perhaps better acquainted with. There is a vast array of investment opportunities available to SIPP holders, and they’re composed of the following.
What investments can you put in a SIPP?
- Stocks and shares (either UK or overseas). You can trade on the stock market using funds from SIPPs.
- Land. Through SIPPs, you can invest in agricultural land.
- Commercial property. You can invest in commercial property, whether that be offices, shopping centres, hotels or warehouses. It should be noted that SIPP providers are more cautious regarding potentially hazardous projects like petrol stations or unforeseen environmental risks.
- National Savings products. You can invest in everything from income bonds to premium bonds.
- Deposit accounts with banks and similar financial institutions.
- Exchange-traded funds (ETFs). You can invest in various securities, and trade on the stock exchange.
- Insurance bonds/funds. Through SIPPs, you can invest in standard whole life, or term life, insurance policies.
Can you buy a business through SIPPs?
You can buy a business using funds from SIPPs, and the process is similar to that of investing in commercial property. If your SIPP is self-administered, then you will handle the transaction yourself (a task that must not be underestimated, of course). With the more traditional SIPP accounts, you will likely transfer responsibility and ownership over to a trustee who uses their own lenders and surveyors to assist with the process.
You may not have enough equity in your SIPP to purchase a business – many do not. In this case, your SIPP provider can arrange mortgages to help you carry out the transaction.
How about ‘lesser-known’ assets you can store in a SIPP?
We’ve covered some of the better known investments that you can make through a SIPP but, as we’ve said, you have a vast range of investment options. Here are some of the less common SIPP investment options.
You can invest in hedge funds
Although hedge funds are generally quite risky given their private nature, you can fund a hedge fund investment using money from SIPP schemes.
You can also invest in derivatives
Derivatives (securities that derive their value from an underlying asset or benchmark, like contracts, options, swaps and forwards).
You can invest in gold bullion
Many choose to invest in gold bullion with SIPP funds.
What about investments that SIPP providers do not allow?
There are many restrictions that SIPP providers place on certain investments. Restrictions are in place for reasons like health and safety concerns and lack of confidence in returns (SIPP providers need to know the investment is worth their time, etc).
- Equities with a lifespan less than 50 years
- Exotic items with unreliable/risky potential for returns (jewellery, art, vintage cars etc)
- Residential property (HMRC restrictions)
- Intellectual property
Be informed and make the right investment decisions
As we said, there are just as many risks to SIPP investments as there are potential rewards. You need to be prepared and fully informed about the risks involved.
Sometimes, your money can fall into the wrong hands and you may need to make a mis-sold SIPP compensation claim. Our knowledgeable team is here to guide you through the process, so be sure to get in touch with us here.