A Shares/AJ Bell podcast listener wants to know how much flexibility they have with managing pension pots
Thursday 04 Feb 2021 Author: Tom Selby

Can I transfer out of a workplace pension to my SIPP at any time, or say at six month or annual timescales? I want to take control of my own investments. What are the laws / rules that cover this?

Matt (podcast listener)

Tom Selby, AJ Bell Senior Analyst says:

If you are employed in the UK, you should be automatically enrolled into a workplace pension scheme. The rules require your employer to pay a minimum of 3% of earnings between £6,240 and £50,000 (‘band earnings’) into the scheme, while you pay in 4% and a further 1% comes via pension tax relief.

Opting out of your workplace pension should be a last resort. Anyone who does so will effectively be turning down the free money of a matched employer pension contribution.

As part of the auto-enrolment process your employer will have chosen a pension scheme which has to meet a range of criteria. These include offering a ‘default’ fund which members are placed into if they don’t make an active choice, with charges for this fund capped at 0.75% a year (although lots of providers charge less than this).

While your employer is required to auto-enrol you into a scheme meeting these conditions, you should be able to transfer the funds you’ve saved to an alternative scheme if you want to.

If you do this, you will be moving your retirement pot from an environment where charges are limited to 0.75% a year to a world where they could exceed this level. Saving in a SIPP will provide you with the freedom to pick and choose an investment portfolio that suits your preferences and risk appetite but keeping costs as low as possible should remain a priority.

Take, for example, two people who save £3,000 each per year, inclusive of tax relief, in a SIPP. Both enjoy identical 5% annual returns but one pays 1% in charges while the other pays 1.5%.

After 30 years, the person who paid 1.5% in charges would have a pension pot worth £160,000, while the person who paid 1% would have a fund worth £175,000. Or to put it another way – paying just 0.5 percentage points more in charges has cost them £15,000 in retirement.

You should also make sure you are comfortable managing two pension pots at the same time, because auto-enrolment rules do not allow your employer to pay your workplace contributions directly into a non-qualifying scheme such as a SIPP.

Finally, before transferring any pension you should also check there aren’t any valuable guarantees attached which you might lose or exit fees you will have to pay. As you are moving money from an auto-enrolment scheme this shouldn’t be an issue.


Send an email to editorial@sharesmagazine.co.uk with the words ‘Retirement question’ in the subject line. We’ll do our best to respond in a future edition of Shares.

Please note, we only provide information and we do not provide financial advice. If you’re unsure please consult a suitably qualified financial adviser. We cannot comment on individual investment portfolios.

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