Transfer Pension to SIPP

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Transfer Pension to SIPP
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Transfer Pension to SIPP

Jon Bean from Carter Thompson Wealth Management joins the Pension & Investments podcast to talk about transferring a pension to a SIPP.

What exactly is a SIPP pension and how do they work?

A SIPP is a self-invested personal pension. It’s a UK government-approved personal pensions scheme that allows an individual to make their own investment decisions and choose from a wide range of investment options.

Is a SIPP pension a good idea?

It very much depends on your situation and what you want to achieve. In the past, SIPPs have tended to have a more expensive charging structure to reflect the wider range of possible investments.

The question you need to ask yourself is do I need a SIPP? Do I need that wide range of investment options? And do I have the skills and the time to deal in individual shares in specific companies?

Some people choose a SIPP because they want to invest in commercial property as part of their pension – and there are strong reasons for looking at this. But for a lot of people a personal pension will work just as well and often reduce the costs.

Are SIPP pensions safe?

You must make sure that whatever SIPP you use is fully regulated, but generally they are as safe as a personal pension. There are different rules around the protection of invested funds, which depends on whether they’re insured funds or individual equities, but broadly speaking, yes, a self-invested personal pension is safe.

Obviously, we would always encourage everyone to do the due diligence – and we do that as a company to be certain that anything we recommend is completely safe and compliant.

What’s the difference between a personal pension and a sipp?

Essentially, it comes back to that range of investments. The tax treatments and the access terms are the same. It’s the range of investments that you could hold within the pension that is the main difference between the two.

 

Can I transfer a SIPP to a personal pension?

Generally speaking, that’s not a problem. We do this on a semi-regular basis. Often it happens where somebody has been looking after a self-invested personal pension and now wants some professional advice.

Perhaps they want us to look after it, or the need for the SIPP has ended – for example if commercial property was held within the pension but has since been released. It’s often easier to simplify things and move your investments into a personal pension.

Can I have a SIPP and a workplace pension?

Yes, this is feasible. You can have a SIPP and a company pension; you can have more than one SIPP – but again it comes down to the reasons why you would choose this set up. With a workplace pension you may gain additional contributions from your employer, which is worth having, and you might want a SIPP alongside that to diversify your investments.

That’s fine, but we would explore the reasons for why you require multiple pensions. Generally speaking we try to consolidate and simplify pension funds – but there are sometimes very good reasons why you would want more than one.

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Our financial advisors can look at your needs, objectives, and goals, to get a full understanding of your individual circumstances which allows us to help you plan for your financial future.

Can I move my current pension into a SIPP?

Again, this will depend on the type of pension that you have. There are some restrictions against moving a defined benefit or final salary scheme. But if you’ve got a personal pension and you’re looking to transfer that into a SIPP, that shouldn’t be a problem.

Again, we’d want to explore the reasons why to make sure it’s the right decision for you.

Can I take all my money out of a SIPP?

Yes, once you reach the minimum age for access, which at the moment is 55. It will be going up to 57 in future. What usually happens is that you receive a quarter of your pension fund tax free.

If you cashed in the whole amount, then a quarter of the pot would be tax-free and the remaining three quarters would be added to your income in the year in which you took it out and you would be taxed accordingly at your marginal rate.

Again, we would explore the reasons why you’re planning to do so and make sure you understand the tax implications. We would also explore the alternatives to mitigate that lump tax liability.

 

Can I put a lump sum into a SIPP?

Yes, broadly speaking you can. There are rules around the tax relief on pension contributions, so we need to ensure you have sufficient relevant UK earnings not to breach various allowances.

It’s something that you should seek advice on to make sure you’re aware of the restrictions.

What costs are involved with a SIPP pension? Do you pay tax on a SIPP?

Just like with a personal pension, when you take money out, 25% of the pot is tax free, while the other 75% is taxed as income in the year it’s taken. You generally get tax relief at your marginal rate within certain limits on both pensions and SIPPs.

They are very tax efficient whilst you’re investing within the pension, because there’s no income tax to pay on any income generated within the pension. There’s no capital gains tax on any growth on the assets within the pension either.

So paying into a pension is very tax efficient. The main thing to bear in mind is that there is likely to be tax to pay when that money comes back out. But that’s something that can be mitigated, depending how much is taken in a single tax year. It’s something that needs a little bit of planning but can be a very tax efficient tool to provide for your retirement.

Can you have two SIPPs?

Yes, you can, but we might question why you would want to. There are various costs involved in any pension scheme. Some involve fixed annual charges for the maintenance of the SIPP, while others might charge a percentage of the funds invested on the platform.

So two individual SIPPs will cost you more in charges. It may be better to consolidate and amalgamate the two funds.

When can I take my SIPP pension?

There are some exclusions but generally speaking, you can take any pension from the age of 55, which will go up to 57 in a few years’ time. With the pension freedoms that came in 11 years ago, you can now do that in a very flexible way. We talk to all our clients about taking some taxable income as ‘drawdown’ from that pension pot.

What happens to a SIPP at age 75?

The age of 75 is talked about quite a lot because it’s the age at which you can no longer pay into a pension and obtain tax relief on those payments. The idea is that by 75 you’ll be in retirement.

However, the vast majority of pensions and SIPPs can run after you’re 75. You’re limited on tax relief but you’re not obliged to take the money out at that point or stop paying in. Having said that, some of the older plans are designed to have an end date, so it’s always worth checking that, but a modern pension contract is designed to run throughout your life.

How can a financial advisor or planner help with SIPP pensions?

We’re always happy to have a chat and go through all the details. We’re here to make sure that you are doing the right thing and that you’re taking out the most suitable type of pension for you. We’ll check you’re paying the fair charges and not overpaying for facilities that you’re never going to use – and that the goal that you’ve got in mind is best achieved by a SIPP or whatever pension you have in mind.

For any pension advice, whether you have a pension or various plans in place already or are looking to set one up, just get in touch.

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

Transfer Pension to SIPP

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