Opening a SIPP
SIPPs – self invested personal pensions - are not suitable for everyone. If you don’t want to invest across different asset classes or don’t think you will make use of the investment choices that SIPPs give you, then a SIPP might not be the right pension for you.
It is also important to remember that you can’t access pension investments until you are 55 - age 57 from 2028 and 10 years below state pension age after that.
With a SIPP, illustrations you receive of your retirement income could overstate your actual investment returns, and understate charges.
As a SIPP is an ‘execution only’ account, you should regularly review your SIPP investments, or seek professional advice, to ensure that they remain in line with your pension objectives.
If you have any doubts about the suitability of a SIPP for your circumstances, we recommend that you seek help from a suitably qualified financial adviser.
For more information on our SIPP please read our SIPP key features.
Transferring your pension
Before transferring your pension to us you should make sure that you understand how the transfer will be made and check that your investments can be held in our SIPP. You can transfer investments or cash to our SIPP. If you choose to transfer in cash remember you will be out of the market while the transfer takes place which means you will not be affected by market rises or falls during this time.
By transferring other types of pension scheme into a SIPP, you may be giving up the right to a guaranteed lump sum and/or pension and you may lose other valuable benefits.
Transfer penalties, including market value adjustments or reductions, may be applied by your existing pension provider. This could result in a reduction in the value of your pension fund. You may be giving up the right to receive a terminal bonus or valuable guarantees on ‘with profit’ plans. You could lose benefits such as life insurance or waiver of premium insurance.
If you wish to transfer a final salary pension scheme you must take advice from a suitably qualified financial adviser. Transfers out of final salary pension schemes are not usually a good idea. In most cases, even if you are offered an incentive to transfer, you are likely to be worse off.
If you are in serious ill health and considering a transfer of a pension, there may be an Inheritance Tax liability if you don’t survive the transfer by two years. You should take advice before transferring if you believe this could apply to you.
Taking income from your SIPP
There are a number of risks you should consider when taking pension income from your SIPP these include:
- Your pension fund will remain invested and the value of the underlying investments can fall as well as rise and it is not guaranteed. This may reduce or increase the level of pension you can take.
- Taking pension income earlier than you originally intended, may mean the level of income you can take may be lower than expected and may not meet your needs in retirement.
- Payments you take from your SIPP are subject to income tax. You may have to pay a significant amount of tax if you make large withdrawals in a short period of time.
- If you take too much out of your pension this may erode the capital in your SIPP. If investment returns are poor and a high level of income is taken, this will result in your SIPP falling in value. This could result in a lower income than anticipated in the future. If your SIPP runs out of funds it could leave you relying on other sources of income for the rest of your retirement.
- Cash and investments held within your SIPP benefit from significant tax advantages when compared with cash and investments you hold outside pensions.
- Your SIPP may be subject to additional tax charges when you withdraw funds if your pension is valued at more than the lifetime allowance.
- After you reach 75, lump-sum payments made on your death will be subject to tax charges.
- If you have a small SIPP and no other assets or income to fall back on the financial impact of these risks may be greater.
The pension you receive from your SIPP is not fixed nor guaranteed for life. If security of income is important to you then you should consider taking an annuity.
Your SIPP can provide pensions and lump sums to others after your death. When thinking about how much to take out, you should consider whether others may be relying on your SIPP after your death.
If you choose to access your pension with an annuity, the level of income you receive is based on the average life expectancy of someone of your age. When fixing annuity rates, providers take into account the fact that some people will die earlier than expected, effectively subsidising those who live longer. Income withdrawals paid from a SIPP do not benefit from this subsidy.
If you choose to purchase an annuity, the level of pension you receive when you purchase the annuity may be less or more than the pension previously being paid under income withdrawal and/or the annuity you could have purchased.
Taking income from your SIPP can be complex. Please read our guide to accessing your pension for more information. You need to consider the investment returns that you may be able to achieve and the level of income that you wish to take. If you are unsure about your options you should consult a suitably qualified financial adviser.
To help you understand the options and make the choice that is right for you we recommend that you take advantage of the Government’s Pension Wise service. Pension Wise offers free, impartial guidance that can help you understand the options available to you when you come to retire. It is not a substitute for full, financial advice.