A decision to transfer to a self invested personal pension should be based on identifying which product features a customer requires, our experts agreed.
Chris Marshall, senior technical specialist at Hornbuckle, says it may be that the investor’s particular circumstances and requirements mean that a Sipp is the most suitable choice of product, or it may be that better alternatives are available.
To get to the point where that can be understood Mr Marshall says transferring to a Sipp requires the same sort of analysis that would be involved in transferring to any other pension product: would it involve an unjustified increase in costs or might it involve giving up guaranteed or other valuable benefits under the customer’s existing pension plan?
A Sipp enables you to have control over the investment selection process for your retirement savings and it is vital that an adviser grasp is this a power that their client wishes to have.
Investors may choose to make their own investment decisions, prefer for their adviser to manage the fund, or appoint an investment manager.
Sipps offer a wide selection of funds and asset classes, and access to discretionary investment management but if an investor is uncomfortable with a greater array of vehicles an adviser should question the appropriateness of a Sipp.
Investors can use platforms, wraps, stockbrokers, or choose to invest directly with a Sipp, potentially all through a single plan.
Some providers allow investors to select specialist investments such as unlisted company shares and commercial property. Sipp providers will generally have a list of assets they are comfortable in dealing with which advisers can obtain on request.
Charlene Edwards, technical services consultant at AJ Bell, points out consolidation is also a consideration.
Existing pension plans can be transferred and consolidated into one Sipp where appropriate in order to minimise day-to-day administration, as well as offering access to the flexibility described above.
However she says advisers need to remember a Sipp does not offer a guaranteed income at retirement and, due to the increased investment flexibility they provide, the costs for smaller funds may be more expensive when compared to other options, for example a stakeholder pension.
Cost is an issue to contemplate. Most Sipps charge fixed fees for the services they offer, according to Paul Evans, pensions technical manager of Suffolk Life.
As well as offering lower costs for larger funds, Mr Evans says this approach provides transparency, allowing investors to know exactly how much and how often they will be charged for the services they use.
On the downside though a flat fee is unlikely to be unsuitable for investors with smaller funds, Mr Evans observes. These investors are likely to benefit from those that have charges based on the value of the investor’s fund.
Advisers should also be aware of any charges that may apply in the future, such as exit fees.
As well as investing, in light of the greater access to pension pots granted since April 2015, advisers need to contemplate whether Sipp providers offer the full range of withdrawal options.
Options to access pension pots include flexi-access drawdown, uncrystallised funds pension lump sum, as well as the ability to continue using capped drawdown if the investor selected this prior to April 2015.
Additionally Mr Evans notes Sipps offer investors the choice of who can receive any remaining pension on their death, including the ability to set up beneficiary drawdown plans or pass benefits onto a bypass trust.
However with so many options with Sipps, Mr Evans says investment choice can be bewildering to the unadvised or novice investor.
While you can use Sipps to take retirement income while remaining invested this action carries the risk of depleting the fund and the investor’s pot running out before they die.
Regular reviews of the drag of withdrawals on investment performance will allow any necessary adjustments to be made, Mr Evans points out.
When reviewing the market, Mr Evans adds that advisers should remember some parts of the Sipp market are financially weak and providers have failed in the past.
He says: “It is important that due diligence is undertaken to understand which providers are unstable or who may want to exit the market before more onerous capital adequacy requirements are introduced next year.”
