“I am 65 and still working, but just three days a week with the same company with which I have one pension, which was closed and replaced with a retirement saver pension. I contribute to this via salary sacrifice. I also have a personal pension serviced by an IFA. The fund is £145k, IFAC charge is 0.5%, a platform charge is 0.3%. Would it be prudent for me to move this personal pension fund to a SIPP provider at this late stage of my life, or would the set up costs etc and drawdown fees be punitive? I would like to consolidate the workplace retirement saver and personal pension fund together and manage it myself.”
Sterling & Law’s response:
Good question and there is quite a bit for you to consider.
I will summarise things to think about below:
As you are still working…
Your employer has to pay into your workplace pension if you remain in the pension scheme.
If you decide to consolidate the workplace retirement saver into your personal pension or a new SIPP, you are likely to lose the benefit of your employer pension contributions. However, you may be able to consolidate the personal pension into the workplace retirement saver pension without losing your employer contributions. Your current company pension contributions are very tax efficient, as you benefit from having contributions before any income tax and national insurance deductions are made on your monthly salary, so I would be careful about losing this benefit if you decide to consolidate to a new SIPP.
Do you plan to access your pension savings before you retire?
This is something to consider if you decide to consolidate the personal pension into your workplace retirement saver. Workplace pensions do not always allow you to partially draw on them while you are still contributing, and this is occasionally a reason to have a pension separate to a workplace pension once you are at retirement age.
It is worth considering why you are looking at a SIPP, instead of your personal pension.
The main difference between a SIPP and a personal pension…
Is the investment options and the way they charge. Personal pensions typically charge a % fee for the product, whereas SIPPs mostly have fixed fees which can be more cost effective for some clients, particularly if you don’t transact often.
From an investment choice perspective, most modern personal pension contracts offer quite a wide choice of investments so it is worth looking at what you have available within your existing personal pension. You may be able to self-manage your personal pension without transferring it, if the provider allows this.
If you are looking to invest in single company shares, investment trusts, or investment funds that are not widely available, you will typically have a lot more choice within a SIPP.
Often the terminology confuses investors, as in reality there is not that much difference between the two nowadays. If you decide to self-manage the pension, bear in mind the level of risk that you are taking with your funds, and if this is appropriate for your circumstances.
Other differences between SIPPs and personal pensions
I also want to point out the difference in the Financial Services Compensation Scheme (FSCS) limits, as they vary for SIPPs and Personal Pensions.
Personal Pensions are usually managed by Life Insurance companies, and they are normally covered up to 100% under the FSCS scheme if the pension company goes bust, whereas with a SIPP you are covered up to £85,000 per firm if it fails. Please bear in mind this does not protect you if your fund loses money due to markets or fund performance, but it does protect you if the pension provider or SIPP provider goes bust.
This is thankfully not a common occurrence, but it is a difference that you should be aware of.
How and when do you plan to draw on your pension?
If you want to buy a secure income once you retire and that is in a short space of time, then it is unlikely that you will benefit from the cost and charges associated with moving the pension. However, if you plan to use your pot to draw on and keep it invested, then this can potentially be a very long term investment so getting it in the right place now may be worth doing.
Hopefully this helps, otherwise I would suggest discussing it with an adviser who can take into account a more detailed summary of your circumstances and objectives.