Self-Administered Personal Pensions (SIPPs and SSAS) are generally considered the most appropriate pension ‘wrapper’ for people seeking flexibility and a broad investment choice not necessarily available in other forms of retirement plan.
They can be used as a conduit to invest in a wide range of assets and securities, their appeal supplemented by significant tax relief. HMRC may insist that SIPPs must be administered by an authorised provider, but it’s the individual investor generally in conjunction with their independent financial adviser who determines what to buy or sell and, crucially, when.
Having such a degree of control has understandable appeal to people who are often used to running their own business and administering their financial affairs.
But there’s another, less tangible benefit, of which SIPP and SSAS members can take advantage during periods of stock market volatility: their ability to act quickly.
When opportunities abound, there’s no requirement for the SIPP and SSAS members to await the approval of investment committees before taking decisive action, a feature which strikes a chord with those used to making decisions.
The appeal of SIPPs and SSAS has become even more evident over the past month as stock markets have whipsawed in the wake of the coronavirus, causing a raft of investment opportunities to present themselves.
Though falls in equity prices do not always represent an automatic opportunity to top-up a SIPP or SSAS and any decisions should be made carefully, and caution is key as different investments and funds act differently and are impacted differently (shares in insurers and airlines, for instance, could endure lengthy periods in the doldrums), prolonged bouts of panic selling could prove advantageous to the independent investor and the longer-term value of their SIPP or SSAS.
A trusted independent adviser would be able to advise on opportunities that might present themselves such as “Using a sell-off as a buying opportunity makes sense, depending upon the investor’s risk tolerance and whether he or she is satisfied a company’s fundamentals will remain unchanged following a crisis.”
Regular monthly payments into a SIPP can be increased to take immediate advantage of falling prices, then returned to their earlier level with little fuss. Alternatively, should investors believe a slump is likely to last for a prolonged period, thought could be given to investing a lump sum to secure lower valuations. However, while we all endeavour to adhere to the ‘buy low, sell high’ adage, investors will be aware that it’s extremely difficult to call the bottom of any market.
Finally, thought should be given to rebalancing a SIPP portfolio following a sell-off, especially where share prices have fallen and bond prices risen, to ensure asset allocations remain broadly similar to their original settings.
Rebalancing a SIPP portfolio should be undertaken on a regular basis, but it becomes essential in the wake of a crisis; in many respects, however, this exercise is an integral part of being an independent, flexible investor, and should be done in conjunction with an individual’s own strategy and own risk profile seeking professional independent financial advice to assist.