Sipps allow you free rein as to where your money is invested whereas standard personal pensions tend to have quite narrow choices.

The beauty of Sipps are that if your funds start to struggle, you can take full control and switch the investment to other areas to make your nest egg grow further.

Almost anything can be placed into a Sipp – from unquoted shares to your own commercial property. With contributions now as low as £50 per month or as a transfer of £5,000 from another pension plan, Sipps are now available to almost everyone.

So is a Self Invested Personal Pension for you? The Financial Services Authority (FSA) has warned that some people have been given the ‘hard sell’ when it comes to Sipps and some of these may have been better off with a simple stakeholder pension of personal pension. As with any financial investment, you really need to do your research to ensure you are getting the financial product that best suits your needs.

If you are considering a Sipp, you will need to ensure you have the time to fully research what you are planning to put into it.

A Sipp will allow an investor to control all aspects of their pension planning giving them flexibility and diversification, which can sometimes be limited in a more traditional pension plan. However this means that you will need to fully understand what you are investing in.

Sipps also tend to be quite cost effective – many insurance based products are percentage driven meaning that as the fund grows in size, so does the costs. Sipps, on the other hand, are typically fee-based so no matter how big the fund, the same fee is payable and therefore as the fund increase, the percentage paid actually becomes smaller.

Low-budget Sipps often don’t come with advice and this means you are really taking on a greater level of risk and you need to ensure you are really very financial savvy. There are many low-cost Sipps around and if you have £50,000 or less to invest, these are probably the Sipps for you.

At the other end of the scale, there are the high-end advice-drive Sipps, however these tend to be if you have a pot of £200,000+. High-end Sipps will be more expensive however they tend to come with advice and you do get what you pay for.

If you are planning to go down the Sipp route, there are eight questions you need to ask:

1. What is the Sipp set-up fee?
2. What is the Sipp annual management fee? Usually, this is a flat fee.
3. How much are the annual fees on the Sipp funds? There are usually ongoing charges of around 1.5%.
4. How much are the initial charges on the funds – Oeics and unit trusts?
5. How much are dealing charges on shares and investment funds?
6. How much are the transfer fees? Are there charges levied for moving money, funds or shares into the Sipp or to another pension provider?
7. What rate of interest will I get on any cash left in the Sipp?
8. Are there any other charges e.g. costs for buying an annuity, costs for paying out on death?

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Research by Aon Consulting has shown that the cost of meeting pensions is has risen with the 200 largest schemes now facing liabilities of over £500 billion. The rise in liabilities is down to a number of factors, most notably the fall of corporate bond yields (on which the costs of future pensions are based).

The figures make poor reading for those heading for retirement age in the near future as it means they will either have less money per year than they had planned for, or they will have to work for longer than anticipated.

Around half of those who have already reached retirement age are said to be still working in either part-time or full-time jobs to help make ends meet, and these numbers may well rise in the future.

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The figures are a stark contrast to the figures two years ago when pension funds were seen with a surplus of more than £100 billion. In the space of a year, the surplus had been wiped out and funds were seen with a deficit of £13 billion. This figure has now increased to a deficit of around £200 billion just one year later.

The massive deficits in pensions funds have forced most companies to close their final salary pension schemes and many believe that companies who still offer final pension schemes may soon close their doors.

Many civil servants enjoy final salary schemes which look to be setting up massive taxpayer liabilities in the future. Some experts reckon that civil servant final salary pension schemes may end up costing over £1 trillion.

Many have criticised current prime minister Gordon Brown for not encouraging people to save. In 1997, dividend payments to pension funds were snatched away. In this year’s Budget, pension plans again were meddled with top-rate tax payers finding that their tax relief had been reduced.

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After April 6 2010, the earliest age at which pensions can be drawn will be raised from 50 to 55, although those who have to retire early due to ill-health will still be able to draw their pensions before they reach 55.

Although there are few people who can actually retire at 50, there are growing numbers of people who are taking their pensions early and dipping in to the interest-free sums locked within. Up to 25% of a fund’s value can currently be taken whilst the rest stays put for true retirement days. Some are also releasing the money in their pensions before they retire as they are worried about the poor returns and want to remove their money for safer havens such as ISAs.

The change in the rules means that some people who are currently able to dip into their pensions if they wish may find that they cannot dip into their pensions next year. Those currently aged between 50 and 54 who have yet to take any money from their pensions may find that as of April next year, they are unable to take the money until they hit 55. Therefore they must think carefully about whether they will want to use some of the cash in their funds before then and therefore remove the cash before the deadline hits.

For those who are planning to take the money early, it is important to remember that the pension’s earnings may then be compromised and the Revenue & Customs enforces strict rules on future pension contributions to ensure that people don’t benefit from a double tax relief by recycling the cash they have taken from the pension by putting it back in.

However, there have been announcements made that anyone who turns 50 before the deadline next year will be able to invest extra into their ISAs to help boost their tax-efficient savings – up to £10,200 in stocks and shares of £5,100 in cash ISAs.

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