Whether you’re starting to put concrete plans in place for your future retirement, or you’ve finally hit that major financial milestone you were aiming for in your career, it goes without saying that there’s never a better time than now to start making additional payments to your pension.
Of course, while contributing more funds to your various workplace pension schemes is a step in the right direction, these sorts of pensions can be quite restrictive in their investment options and returns – which is probably why you’re considering transferring your workplace pension to a SIPP.
An excellent pension option for those seeking a greater degree of financial freedom, SIPPs offer their owners both increased investment flexibility and several tax-based benefits that very few traditional pension schemes can compete with.
But while you might be familiar with what SIPPs are, we also understand that committing to such a change can be intimidating and potentially confusing, especially if you’re unfamiliar with the finer points of finance management or have previously been on the receiving end of poor financial advice in the past.
Fortunately, that’s exactly where the team at Cameron James can lend you a hand!
Experts in all areas of pension and future financial planning, we’re here to help you wrap your head around why might want to consider using this unique type of pension scheme, as well as a breakdown of what’s involved when you transfer your workplace pension to a SIPP, all so you can seamlessly meet your retirement dreams well before the big day.
What is a SIPP?
First things first, before we break down the benefits of a SIPP vs workplace pension and the transfer process, it’s worth reiterating exactly what a SIPP is for anyone unfamiliar with the term, and how it differs from a standard employer pension scheme.
In short, SIPP stands for Self-Invested Personal Pension, meaning it is a personal pension scheme rather than a work pension, but one where you have a greater degree of investment flexibility and choice.
Funded by your own finances, a SIPP allows you to consolidate all prior pensions into one singular pot and then invest it as you see fit, rather than having to rely on the limited investment options found with most typical workplace pension schemes.
Naturally, this makes SIPPs an excellent alternative to traditional defined contribution and defined benefits pension schemes, particularly if you want to maximise your final pension pot when you settle on a date to hang up your coat.
What are the benefits of transferring your workplace pension to a SIPP?
Although all pension schemes come with their own distinct benefits and reasons to choose them, as we highlighted earlier, SIPPs provide a much wider benefit selection when it comes to investment potential.
Below are just some of the core benefits associated with setting up a SIPP vs a workplace pension:
- Simple pension management – nowadays, it’s not uncommon to have several pensions, which can make managing and tracking them difficult. A SIPP allows you to consolidate all these pensions into one pot, reducing admin and allowing for more accurate estimations of pension income during retirement.
- You’re in control of risk levels – as you’re in control of exactly how you invest the money in your SIPP, you get to decide on the level of investment risk that’s right for you.
- Tailored investment options – as a general rule, SIPPs tend to come with a broader choice of investment options for you to choose from, with many including over 2,000 different fund options and no markups on TER.
- Tax benefits – the majority of SIPPs automatically benefit from tax relief contributions from the government. Better yet, they’re not susceptible to traditional income and capital gains tax. Any and all SIPP growth is considered tax-free.
- Improved rates of return – thanks to their wider investment options and cheaper investment prices, well-invested SIPPs will often provide you with a greater return on your investments compared to traditional pension schemes.
- Better inheritance planning – although not something you’re likely concerned about, should the worst happen and you pass away before the age of 75, your SIPPs can actually be transferred to your beneficiaries tax-free, even if the pot exceeds the inheritance tax threshold, making them a great financial safety net for those closest to you.
What are the risks that come with moving your workplace pension to a SIPP?
While all the benefits we’ve outlined above are key reasons why you should consider converting your workplace pension to a SIPP, that’s not to say that SIPPs don’t come without risks.
Below are three main drawbacks to consider before committing to any SIPP scheme:
- Loss of Defined Benefits – If your workplace pension is a Defined Benefit (DB) or “Final Salary” scheme, transferring it to a SIPP means losing guaranteed income in retirement. DB pensions offer a predictable income, often linked to your salary and length of service. A transfer to a SIPP removes this certainty, transferring the risk of retirement income to you, as it depends on your investment choices and market performance.
- .Exposure to Market Volatility – SIPPs provide more control and investment options but also expose your savings to market risks. Unlike workplace pensions, where professional managers handle investments, a SIPP places the responsibility on you. Poor investment performance, especially close to retirement, could result in significant losses and reduce your available retirement funds.
- Higher Costs and Fees – Transferring to a SIPP can mean facing higher fees, such as platform charges, fund management fees and trading costs. Workplace pensions often benefit from lower fees due to larger pooled investments. Higher costs in a SIPP can erode growth, especially for smaller pension pots, impacting the long-term value of your retirement savings.
Compared to a workplace pension, SIPP brings flexibility and choice, which can be ideal for those who want a more active role in retirement planning. Evaluating the advantages and potential drawbacks carefully and seeking expert guidance can help you feel confident that your decision supports your financial goals and lifestyle preferences.
How to move your workplace pension to a SIPP
Now that you have a feeling for exactly what a SIPP can offer you compared to your current workplace pension scheme, let’s now look at the core steps involved in moving your workplace pension to a SIPP.
While the process may seem straightforward, it’s important to work with a financial adviser to make sure that every decision is aligned with your long-term financial goals and to avoid any potential pitfalls.
1. Get a complete understanding of your current pension scheme
To begin with, it’s important that you fully understand the benefits and drawbacks surrounding your current pension scheme, and whether or not these are something you want to retain or change going forward.
For example, if you’re on a defined benefits pension, then you may not want to lose this guaranteed income for life by moving it to a SIPP. On the other hand, if you have 4 pensions from 4 different jobs, a SIPP could be the best way to consolidate them and diversify your pension investment portfolio.
2. Speak to an independent financial advisor
If you’ve looked at your current pension schemes and have decided that a SIPP is something you’re interested in considering, then your next step should be to seek out the advice of an independent financial advisor who is knowledgeable in both SIPPs and pensions.
Such an advisor will discuss with you your current pension and financial situation and help to determine whether or not investing in a SIPP is the best option for your personal circumstances.
3. Compare SIPPs providers
Select a SIPP provider that aligns with your investment preferences and offers competitive fees. Your financial adviser can guide you through the options and help you choose a provider that offers the flexibility and investment opportunities that suit your needs.
4. Open Your SIPP Account
Once you’ve chosen a provider, you’ll need to open a SIPP account. This typically involves completing an application form and providing identification and details about your current pension scheme. Your adviser should assist you with this process and ensure that everything is completed correctly.
5. Initiate the Transfer
After your SIPP account is set up, your financial adviser will help you contact your workplace pension provider to request the transfer. The pension provider will send you transfer paperwork to complete. This can take a few weeks, depending on the complexity of your existing pension.
6. Review Investment Options
Once your funds are transferred, you’ll need to decide how to invest them within your SIPP. A SIPP offers a wide range of investment choices, such as stocks, bonds, mutual funds and even commercial property. Your adviser can help you select investments that align with your financial goals and risk appetite.
SIPPs transfer FAQs
How long does it take to transfer a workplace pension to a SIPP?
The length of time it takes to transfer a workplace pension to a SIPP can vary between providers and will likely be impacted by the number of pensions you want to transfer and how quickly you complete any associated paperwork. On average, it takes 2 to 8 weeks.
How much does it cost to transfer to a SIPP?
The cost of transferring to a SIPP varies depending on your chosen provider. For more information about our pricing, visit our cost page or contact us directly.
Can I have a SIPP and a workplace pension?
Yes, you can have a SIPP alongside your workplace pension. Keeping your workplace pension is often a smart choice, as it allows you to continue receiving employee and employer contributions. A SIPP can complement this, giving you more control and flexibility over your other pensions.
Can employers make SIPP contributions?
Even though a SIPP is a personal pension plan, it is still possible for employers to make contributions should they desire to do so. However, there is no legal obligation for them to do this and any contributions they do make will not qualify for tax relief.
When should I start looking at investing in a SIPP?
You can start looking to invest in a SIPP as soon as you feel comfortable to do so. You can apply for a SIPP if you’re between the ages of 18 and 75, and there are even Junior SIPPs in place for those under the age of 18.
Can I invest in a SIPP as an expat?
Yes, you can indeed invest in a SIPP as an expat. These SIPPs are known as international SIPPs, however, they operate in the same way as a standard UK SIPP and offer the same benefits for tax purposes.
Start investing in your SIPP with Cameron James
Now that you have a better understanding of the steps involved in transferring your workplace pension to a SIPP and the potential benefits, it’s time to take the next step.
As mentioned, one of the most important aspects of this process is seeking expert advice, and that’s where Cameron James can help. With nearly a decade of experience in financial planning, our FCA-regulated advisers are trusted by clients worldwide to guide them through their pension decisions and help them work towards their retirement goals.
To get started, simply click here. One of our expert advisers will set up a Zoom call to discuss your unique pension needs and how we can help.
For more financial insights, be sure to visit our blog, where you’ll find a range of helpful guides and tips.
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