SIPPs

If you feel confident in your abilities as an investor, a SIPP (Self Invested Personal Pension) enables you to take control of your pension savings, rather than relying on a faceless fund manager.

The key advantage of using a SIPP for your retirement savings is that contributions made into a SIPP are tax-free, and your taxable income is reduced by the amount of contribution. So for a basic rate tax payer, a contribution of 100p would effectively only cost 80p (assuming a 20% rate of tax).

There are yearly limits to the amount you can contribute into your SIPP. Earners can contribute up to 100% of their annual earnings. Non-earners up to £3600 (still getting basic rate tax relief).

When you retire, you can either buy an annuity with your SIPP fund, or you can keep the fund and draw a regular income from it.

Under SIPP rules, you need to appoint a trustee and an administrator for your fund. The Sipp trustee is the entity to which you entrust the legal title to the trust's assets. The administrator handles the day-to-day running of your fund. Most SIPP providing finance companies offer the two functions as part of their package.

With a SIPP, you can invest in a very wide range of investments, from share, to unit trusts, to life funds to commercial property. If you own your own business, you can use your SIPP to buy commercial premises, while borrowing up to half the purchase price.

SIPPs are subject to several possible charges, such as setup fees, annual administration fees, and dealing charges.

Make sure that your SIPP provider is authorised by the FSA, as protection for your SIPP is given by the Financial Service Compensation Scheme, which only applies to FSA authorised finance companies.