Three Reasons To Secure Your UK Pensions Via SIPPs

SIPPS, or 'Self-invested personal pensions' used to be the domain of savvy investors with large pots, but thanks to competition and new freedoms, pension transfers to SIPPs are on the rise. As more people look to take responsibility for their own retirement outcomes, securing your pension into a modern SIPP offers three advantages: control, choice and cost.

Why bother? Should the scheme fail, i.e. Carillion's earlier this year where approximately 20,000 members lost up to 40% of their entitlements over night, it gets passed into the Government's Pension Protection Fund, and well, the rest is history. To put into perspective just how in trouble the UK pension system is, let's take BAE - The level of debt they have could buy out the company three times over.

Here's another one, the shortfall in defined benefit pensions alone in 2017 was 2.3 trillion pounds. The GDP of the United Kingdom was 2.6 trillion.

The annuity you were promised? Maybe not so likely.

For a full list of all failed schemes now in the PPF click here.

How a SIPP gives you more control & security

The tax advantages you get by investing in a self-invested personal pension or SIPP, are the same as in all pensions. If you are a basic rate taxpayer and you are putting away £200 a month, or £2400 a year into your SIPP, the government will add £600 for that year. You can think of this as an automatic 25% bonus. Higher-rate taxpayers can claim a further £1000, raising their £2400 contribution to £4000. That’s a big incentive to save.

A SIPP isn’t necessarily a replacement for a workplace pension, particularly when your employer is making contributions alongside you. But we now, on average, change jobs ten times in our careers, leaving each pension abandoned behind us. Contributions stop, but charges don’t, and they can be damaging. Instead of losing track of old dormant funds you are still paying for, they can be transferred to your SIPP and brought under one roof, where you control the investment strategy.

As you approach your retirement and think about how to fund it, your strategy is likely to change, and a SIPP gives you the flexibility to respond.

After age 55, pension freedoms mean you can convert your SIPP to drawdown. That enables you to tap your fund for taxable income or lump sums, and withdraw 25% tax-free if you wish, whilst keeping the fund invested.

Another attraction is that if you fail to reach 75, your SIPP will pass to your beneficiaries, tax-free.  If you die age 75 or older, it becomes part of their taxable income.

You can transfer your old UK pensions to a SIPP if you live overseas to protect against many of the risks associated with keeping the funds trapped in the system and consequences that may arise through scheme insolvency. 

A SIPP gives you more choice

The wide investment choice in SIPPs can make a significant difference to the performance of your pension, and therefore your retirement.

You may currently have several old pension funds, all with a similar investment strategy. That strategy may be tied closely to the performance of the FTSE 100, which may expose you to more risk than necessary, particularly if you are nearing retirement. Or they may be invested over-cautiously.

Where traditional personal pensions do have enough funds on offer, charges for switching funds can be steep, particularly on older policies. Stakeholder plans have lower charges, but a more limited fund choice. Newer pension brands may offer a small menu of generic funds.

A SIPP on the other hand can be invested in a huge range of shares, bonds, funds, investment trusts, or exchange traded funds (ETFs), and it allows you to choose investments you understand and are comfortable with. You can hold whatever you like in cash until you are ready to invest it.

You may have to do some homework on SIPP investing basics and learn as you go along of which we can help you with through our complimentary review (see below), but your pension is a long-term investment, giving you time to ride out the market's ups and downs. By following basic principles such as diversification and phased buying, your SIPP should grow.

Worked in the UK before? Complimentary UK Pension Review Now Available

With the perpetually worsening state of the UK pension system, our UK team are encouraging us to all look into how to best secure against more losses via our complimentary review service for any UK-based funds (see below). To those who are currently in the process of having these reviewed by our team, we'll be in touch once we know more & the reports are received so we can explore your options in securing these. For those who aren't yet, happy to be extending this complimentary service out to you.

To clarify, this complimentary service is for review purposes only and in no way allows for funds to be touched or moved. This non-obligatory and non-contractual service is something my team and I are able to utilise through our UK office to help British expats (or those who have spent more than 2 years working in the United Kingdom) now based in East-Asia.

✓ Full valuation✓ Legal entitlements✓ Debt level/solvency of scheme✓ Current/past fund performance✓ Current death benefits (how much is passed to whom upon death)✓ Guaranteed minimum pension (GMP)

Exploring your options in securing these is advised since there are significantly more flexibilites as you are an expat and no longer a UK tax-resident. Interested in looking into your options? Let me know and I'll be delighted to help in providing a blank Letter of Authority (as shown below) and we can get the ball rolling. My team and I also encourage & are happy to help with checking your National Insurance contributions to ensure you receive your 8,091 GBP per year.