Personal Pension Plan (PPP)
A PPP can invest in stocks, shares, bonds, gilts, commercial property, cash in the UK and overseas. It is usual when people have a PPP that they invest in the pension provider’s (and sometimes external fund managers) own collective investment pensions funds e.g., UK Equity Fund, North America Fund, European Fund, Japan Fund, Fixed Interest Fund, Deposit Fund, Managed Fund, Balance Fund and Defensive Fund etc.
You get tax relief on contributions, lump sum payment at retirement with the balance of funds to buy an annuity or use flexible drawdown. There are annual allowances on the maximum amounts that you and your employer can pay into a pension as well as restrictions on the maximum lump sums you can withdraw. Early retirement ages are in line with current UK law etc.
For more on PPP, see: PPP
What is a Self Invested Personal Pension (SIPP)?
The clue is in the title, it is a Personal Pension Plan (PPP) with all the usual investment funds available and same tax relief, lump sum, annual contributions allowance rules but it has the ability for you to invest in much wider and more focused areas than a PPP does.
Wider Investment Choices for a SIPP
In simple terms, with a SIPP you have control and choice as to where your pension fund invests i.e., you are self investing rather than using a fund manager directly into specific stocks and shares traded on markets, private company shares, direct commercial property. Your SIPP can even have a mortgage to buy property although there are restrictions on the amount that your pension fund can borrow. Your SIPP can also have its own bank account and checking facility as well as deposit accounts. In addition, in the same way as a PPP, your SIPP can invest collective funds with a fund manager.
The following list is not complete but a useful summary of where a SIPP can invest and where there are restrictions.
Restricted Investments - allowed but special rules must be followed
Prohibited Investments - Specifically excluded by HMRC
Pension Borrowing Rules
For more on SIPPs, see: SIPP
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