How to set up a SIPP
If you want more control over your pension planning, then setting up a SIPP could be the right decision for you.
Wealthy pension savers who want more control over their various retirement plans should consider setting up a self-invested personal pension (SIPP). It can be less complicated than you might think.
SIPP providers give you a much wider range of investment options than a pension with an insurance company and you can also gather a variety of pensions into the one ‘pot’, so you are no longer trying to keep track of a number of plans from previous employers.
“Before you can move your existing pensions into a SIPP, you need to make sure you have found them all. You cannot move your state pension into a SIPP, but most company or personal pensions can be moved.”
One major benefit of using a SIPP is that it makes it much easier to monitor how close your pension fund is getting to the lifetime allowance, which recently fell from £1.5m to £1.25m on 6 April this year. If you act fast, you still have time to protect your pension from the fall in the allowance. You must make sure that if you have been auto-enrolled into your company’s pension scheme, you opt out within a month, otherwise you will lose your lifetime allowance protection.
So, if you want to set up your own SIPP, here is what you need to know:
1. You need to identify all your pensions to move them into a SIPP
Before you can move your existing pensions into a SIPP, you need to make sure you have found them all. You cannot move your state pension into a SIPP, but most company or personal pensions can be moved.
To ensure you do not miss any of your pension savings to date, you should sit down and work through your previous employers chronologically and think back to see if you have any pension entitlements with them. You can also trace old pensions through a government service.
2. You can reduce your pension management fees
SIPPs can be a relatively inexpensive way of managing your pension funds. Older pension plans can have higher charges than more modern low cost arrangements. So much so that the government is intending to put in place charging caps from next year.
Your set-up costs could be anything from zero to £1,000 depending on your SIPP provider and the complexity and size of your pension fund and its investments. Annual fees range from 0.5 per cent to 0.75 per cent or can be a flat fee. The fund fees each year will vary and you may face exit fees.
3. You must decide how much risk you are prepared to take
This will depend as much on how close you are to retirement, as to whether you are comfortable with seeing the value of your fund rise and fall significantly with the markets. History shows us that the more risk you are prepared to take, the greater the rewards can be. But you also need to be able to sleep at night. So work with your adviser to see what you would be prepared to do with your money.
4. You need to identify where you want to invest your funds
Once you have identified the level of risk you are prepared to take, you then need to choose the investments for your fund. A SIPP gives you a much wider range of investment choices than traditional pensions. For example, in addition to the ‘usual’ investment types available, you can also invest in commercial property and offshore funds.
5. You can have more involvement in your investment decisions
SIPPs have an advantage over many other types of pension schemes as you have direct control over the investments that are in your pension fund. This can be both a blessing and a curse, as you will need to know more about investing if you choose to do this yourself, but for those with a greater knowledge and a good adviser, it can be a much more beneficial way of saving for retirement.
If you prefer to have someone else make your investment decisions, you can often ask an adviser to provide a ‘discretionary management service’, so he or she makes the day-to-day investment decisions for you.
About the author
Alan Smith is the CEO of Capital Asset Management. His specialisms include: wealth management, strategic financial planning and creative tax planning.
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