News/Events

SIPPs offer new opportunities to young and old alike [17th December 07]

Since A-Day, the date given to the introduction of Pensions Simplification, Self Invested Personal Pensions (SIPPs) have become increasingly popular. Many investors have utilised the potentially greater flexibility of SIPPS, however for some clients the traditional personal pension and stakeholder contracts continue to offer a suitable and convenient retirement savings facility. Those can be arranged by a Financial Adviser with a Life Company but many are now being set up direct with a SIPP provider especially as they are being heavily advertised .There are many private SIPP providers which have no requirements for a minimum investment or a particular type of investment, subject of course, to HMRC rules.

The much more generous levels of permitted contributions and the removal of concurrency – you can be a member of a group scheme as well as pay into a personal pension plan – have driven DIY SIPPs forward and appeal to two types of individuals.

Firstly, a relatively young high earner who previously has never thought of having his “own” pensions plan and indeed has never considered the need for a financial adviser. This person will have undoubtedly gleaned information from the financial press about A-Day and SIPPs and will be looking at this primarily as a tax mitigation arrangement. The amounts involved can be, in some cases, modest with clear cut and relatively low charges but in many cases the contributions being paid are large with the tax relief overriding the reason for doing it and forgetting to have a long term strategy in mind. The cost and effectiveness of a SIPP may also be dependent on both the size of investment held as well as the particular fund. As a result the charging structures will impact in differing ways and smaller funds may not benefit in the same way as larger funds.

Secondly, the more traditional SIPP client is significantly older, often approaching retirement and considering quite different options. These could be the flexibility of income drawdown (unsecured pension) including phasing their benefits; bringing all their pension plans under one roof or Inheritance Tax Planning.

The SIPP fund will generally be largely made up of transfer values from other contracts and consequently advice will be necessary initially on whether to transfer and then ongoing incorporating both financial planning and help in making decisions on the underlying investment plans. Also, have all the disadvantages been covered e.g. going into Drawdown and delaying buying an annuity , could reduce your future income as well as the apparent advantages.

It appears, therefore that there is this two tier trend developing in the SIPP market which maybe, to some degree, no bad thing as, at least, it ensures more individuals are putting money aside for their retirement and hopefully from an earlier age.

Many surveys have suggested that younger people are not only more financially sophisticated than their parents but are more conscious for the need to save for their old age. State benefits will not be sufficient by a long shot and from what age? The DIY SIPP gives them an opportunity to take personal control of their destiny and to be able to adapt to changing market conditions.

At Langtons we consider that seeking independent financial advice is vital in relation to SIPPS and retirement planning in general. Overworked and professional people are often lured into a plan by an appealing advert, yet care has to be taken when transferring other pension contracts into SIPP contracts. Certain benefits, which may be guaranteed such as the amount received in retirement together with possible increments may be lost. In addition, penalties from transfers may be imposed thereby reducing the initial appeal.

As with many investments there are no guarantees when investing into a SIPP and investors may see their SIPP investment values fall as well as increase.

The above does not constitute advice and readers are advised to seek independent financial advice. 

This article was written by Langtons - Published in the Western Morning News, This is Money, 17th December 2007