In this guide, we answer your questions about SIPPs and whether they’re regulated, how high-risk they are, and how much protection you can expect from the FSCS.

Are SIPPs safe?

In short, SIPPs (Self-Invested Personal Pensions) are generally safe.

They are regulated by the FCA, and you’re protected by the FSCS compensation scheme.

However, their safety does also depend on the underlying investments you choose in your SIPP. Since you’re in control of the investments, it’s essential to assess the risks and make informed decisions.

SIPPs offer a wide range of investment options, allowing you to tailor your portfolio to your personal preferences and risk tolerance.

This flexibility can be both a blessing and a curse.

On the one hand, it allows you to create a well-diversified portfolio that can potentially withstand market fluctuations.

On the other hand, if you don’t carefully manage your investments, you could expose yourself to unnecessary risks and potential losses.

To ensure the safety of your SIPP, it’s crucial to research each investment thoroughly and maintain a diversified portfolio.

This helps reduce the impact of a single underperforming investment on your overall returns.

If you were to invest 100% of your SIPP into one share – even if it’s a well-known and reputable company – your SIPP would be very high risk.

No company is immune to market fluctuations and potential economic downturns that are outside of its control. So, it’s important to diversify your investments to make sure your SIPP is safe.

Additionally, you should regularly review your investments and make adjustments as needed to keep your portfolio aligned with your long-term goals.

If you’re unsure about your SIPP – whether it’s how it’s invested, or whether you’re withdrawing in the right way – we recommend speaking to a SIPP adviser like ourselves. Book a free, initial consultation with an adviser to see how we could help.

Are SIPPs high-risk?

SIPPs can be high-risk or low-risk, depending on your investment choices.

You’ll find a wide range of investment options, including stocks, bonds, funds, and even property.

Some investments, like government bonds and cash, are generally considered low-risk, while others, such as individual shares and ETFs, can carry a higher level of investment risk.

The key is to diversify your portfolio and consider your risk tolerance.

By spreading your investments across different asset classes and sectors, you can reduce the overall risk of your SIPP. This diversification strategy can help you avoid putting all your eggs in one basket and minimise the impact of a single investment’s poor performance.

It’s also crucial to keep in mind that the risk level of your SIPP may change over time as your investment horizon shortens.

As you approach retirement, you may want to shift your investments to more conservative, lower-risk options to protect your savings. Your investments won’t have as much time to recover from poor performance swings the closer you get to retirement.

Here’s a table with some examples of SIPP investments and their risks, benefits and drawbacks compared.

Investment TypeWhat is it?BenefitsDrawbacks
StocksOwnership in a companyChance for high returns, growthRisk of losing money, market ups and downs
Index FundsCollection of many stocksSpread risk, low costTied to overall market performance
BondsLoans to governments or companiesProvide regular income, less risky than stocksReturns may not keep up with inflation
Property FundsInvestments in real estateSpread risk, earn income, protect against inflationTied to property market, not always easily sold
Cash SavingsBank accounts, short-term investmentsSafe place to store money, easy accessLow returns, may lose value to inflation
CommoditiesPhysical goods like gold or oilProtect against inflation, spread riskCan be volatile, market uncertainty

Are SIPPs regulated?

Yes, they are. SIPPs fall under the jurisdiction of the Financial Conduct Authority (FCA). That means SIPP providers must adhere to strict rules and regulations, which helps to ensure your money is safe.

The FCA sets standards for providers, including capital adequacy requirements and stringent reporting guidelines. These measures are in place to protect investors and maintain confidence in the financial system.

However, it’s important to note that the FCA’s regulations apply to the SIPP providers themselves, not the specific investments within your SIPP. As a result, the safety of your investments is still ultimately in your hands.

It’s essential to research each investment thoroughly, understand the risks involved, and make informed decisions to protect your savings.

How much of a SIPP is protected by the FSCS?

If your SIPP provider goes bust, the Financial Services Compensation Scheme (FSCS) provides some protection.

You can claim up to £85,000 per person per firm.

Also, SIPP providers are legally required to hold investor cash and assets in separate accounts to their own, and they can’t legally use your SIPP money to pay their debts if they go into liquidation.

So unless there’s an extreme case of fraud, it’s unlikely that you’d need to rely on the FSCS to protect your SIPP funds.

Also, this FSCS protection doesn’t cover investment losses due to market fluctuations.

The FSCS protection applies to the financial services provider, not the specific investments within your SIPP.

It’s essential to keep this distinction in mind when assessing the safety of your SIPP.

If you invest in an individual company within your SIPP and they go bust, then you could lose the entire value of that holding. As a shareholder you’ll be a creditor to the liquidation proceeds, but you’ll be very far down the list and it’s unlikely you’ll get much back.

Keep this in mind when you’re choosing your SIPP investments and remember to diversify as much as possible!

What happens if a SIPP goes bust?

If your SIPP provider goes bust, the FSCS will step in to help. They’ll either transfer your SIPP to a new provider or compensate you up to the £85,000 limit. Remember, this doesn’t cover losses from poor investment performance.

During the transfer process, your investments may be temporarily frozen, meaning you won’t be able to buy, sell, or make changes to your holdings. This period of inactivity is typically short-lived, as the FSCS works quickly to find a suitable replacement provider and ensure a smooth transition.

If you have more than £85,000 in your SIPP, you still shouldn’t need to worry if your SIPP provider goes bust. SIPP providers are not legally allowed to use client funds to pay their creditors or debts, and investor money is reign-fenced in separate holding accounts.

Related: Do you have a Hartley Pension SIPP and are struggling with knowing what to do? Here’s the latest information along with how SIPP Advice we can help.

Is SIPP a good idea?

For many people, SIPPs can be an excellent way to save for retirement.

They offer flexibility, tax advantages, and a wide range of investment options. However, they may not be suitable for everyone, particularly those who aren’t comfortable making their own investment decisions.

One of the main advantages of a SIPP is the ability to tailor your investments to your specific needs and goals.

On the other hand, the responsibility of managing your investments may be overwhelming for some investors, particularly those without prior experience or knowledge.

If you fall into this category, you might consider seeking the guidance of a financial adviser or exploring other retirement savings options, such as workplace pensions or personal pensions, which provide more limited investment choices but may be easier to manage.

Can a SIPP lose money?

Yes. The value of your SIPP investments can go up or down depending on the investments you hold within it.

Market fluctuations are a normal part of investing, and it’s important to remain focused on your long-term objectives rather than reacting impulsively to short-term market movements. Regularly reviewing your investments and rebalancing your portfolio can help you stay on track and minimise the risk of significant losses.

Additionally, while SIPPs provide access to a wide range of investments, not all investments are created equal. Some investments carry higher risks than others, and it’s essential to understand these risks before committing your money.

For example individual shares are riskier than managed funds that group investors money together and invest in lots of different companies.

Conduct thorough research, consult with a financial adviser if needed, and be prepared to adjust your investments as your needs and goals evolve.

Do I need financial advice for a SIPP?

You don’t need financial advice, but it can be helpful, especially if you’re new to investing.

A financial adviser can guide you through the process and help you make informed decisions based on your personal circumstances.

They can also advise on what SIPP to open, and help you with the transfer process (although you can do this all yourself too if you’re confident).

Working with a financial adviser can be particularly beneficial when developing your initial investment strategy, as they can help you assess your risk tolerance, set realistic goals, and create a diversified portfolio.

They can also provide ongoing support, helping you navigate market fluctuations, rebalance your portfolio, and help you plan how much you’re going to need in retirement.

That being said, some investors feel confident managing their SIPP investments without professional advice and prefer to avoid the cost of a financial advisor.

If you have a solid understanding of investing principles and are comfortable with the responsibility of managing your portfolio, you may not require the assistance of a financial adviser.

Ultimately, the decision to seek financial advice for your SIPP depends on your personal preferences, investing experience, and comfort level with managing your own investments.

Should I hold cash in a SIPP?

Holding cash in your SIPP can be a wise move, especially if you’re looking to maintain a diversified portfolio and mitigate risk.

Cash can act as a buffer during periods of market volatility, providing stability and reducing the impact of market fluctuations on your overall portfolio.

However, it’s essential not to hold too much cash in your SIPP, as it could result in missed opportunities for growth.

Cash typically generates lower returns than other investments, such as stocks and bonds, which means your retirement savings may not grow as quickly if you’re overly conservative with your cash holdings.

Cash will also be worth less over time due to inflation. For example if inflation goes up 5% in a year, your cash is effectively worth 5% less than 12 months ago.

As a rule of thumb, consider maintaining a cash buffer that aligns with your strategy.

As you approach retirement, you may want to increase your cash holdings to provide a greater level of security and stability.

Can you leave a SIPP in your will?

Yes, you can leave your SIPP to your beneficiaries in your will. In fact, SIPPs can be an effective estate planning tool, as they typically fall outside of your estate for inheritance tax purposes (unless you’re over 75 when you die).

Upon your death, your beneficiaries can choose to inherit your SIPP as a lump sum or as a drawdown pension, which allows them to take income from the SIPP over time.

If you die before the age of 75, your beneficiaries can inherit your SIPP tax-free. If you pass away after the age of 75, your beneficiaries will be subject to income tax on any withdrawals they make from the inherited SIPP.

To ensure your SIPP is distributed according to your wishes, it’s important to keep your nominated beneficiaries up to date and consult with an estate planning professional to create a comprehensive plan.

Can I withdraw all my money from a SIPP?

Technically, you can withdraw all your money from a SIPP, but there are tax implications to consider.

Once you reach the age of 55, you have full access to your SIPP funds.

You can take up to 25% of your SIPP as a tax-free lump sum, but any additional withdrawals will be subject to income tax at your marginal rate.

Withdrawing all your money from a SIPP in one go can result in a hefty tax bill and may not be the most efficient way to access your retirement savings.

Instead, consider spreading your withdrawals over multiple years and making use of multiple years of tax-free personal allowances, and limiting the amount of income tax you pay where possible.

Is a SIPP better than an ISA?

Both SIPPs and ISAs have their advantages, and the best choice depends on your individual needs and goals.

SIPPs offer tax relief on contributions and a wide range of investment options, making them an attractive option for long-term retirement savings.

However, they’re subject to restrictions on when and how you can access your funds. You can’t take money out until you’re 55, and you’ll pay income tax on withdrawals when you do (after your 25% tax free cash).

ISAs, on the other hand, offer more flexibility, as you can access your money at any time without tax implications.

Also, any interest, dividends, or capital gains within an ISA are tax-free (as they are with SIPPs).

However, the main difference is that ISAs don’t provide tax relief on contributions like SIPPs do.

It’s common to consider a combination of both SIPPs and ISAs to maximise your savings and retirement options.

SIPPs can provide a tax-efficient way to save for retirement, while ISAs offer more accessibility and flexibility for short- to medium-term financial goals or emergencies.

The Bottom Line…

SIPPs can be a safe and effective way to save for retirement, provided you make informed investment decisions and diversify your portfolio. They offer flexibility, tax advantages, and a wide range of investment options.

However, it’s essential to consider your own financial situation, risk tolerance, and long-term goals when deciding whether a SIPP is right for you.

Whether you choose to manage your investments yourself or enlist the help of a financial adviser, regular reviews and adjustments to your portfolio can help ensure your SIPP remains a safe and secure retirement savings vehicle.