Self Invested Personal Pensions (SIPPS)

Self Invested Personal Pensions (SIPPs) are a type of personal pension and have proven to be a popular destination for funds transferred away from Defined Benefit (final salary) pensions.

This is because if you want to take advantage of greater flexibility of taking income in retirement, you will have to transfer to a type of pension arrangement that allows this, specifically a Defined Contribution type of arrangement such as a SIPP.

SIPPs increase the range of investment opportunities and the theory is this will potentially enhance returns. The ‘self-invested’ part provides an element of control over the ‘what and ‘when’ of investments. 

SIPPs are allowed to invest in:

  • Authorised or recognised collective funds
  • Securities listed on stock exchanges
  • Commercial Property
  • Bank Deposits

SIPPS have been a popular way to set up businesses as shares in a business can be purchased by funds within the business owner’s SIPP account. They can also invest in commercial property which may be the business premises of the SIPP holder/business owner.

Pension Transfer Hub SIPPs Self Invested Personal Pensions Investment Decisions

Self Invested Personal Pensions (SIPPS) – Investment Decisions

Appointing an investment manager with discretion over what investments to make (and when) takes away a lot of the responsibility involved with ‘day to day’ investment decisions.

Alternatively, instead of using a discretionary manager, SIPP account holders are able to make their own investment decisions and many find that as time passes their reliance on an adviser decreases, as their own experience increases.

A full SIPP is subject to the same contribution limits, tax rules as other personal pensions. 

Read more on the Annual Allowance and MPAA

The range of allowable investments that can be held within a SIPP include:

Investment Trusts

Unit Trusts

ETFs

OEICs

Shares

Commercial Property

Traded Endowment Policies

Gold Bullion

Futures and Options

Ground Rents (excluding residential property)

WARNING: Investments into fine wine, vintage cars, works of art, jewellery and stamps are not allowed!

Pension Transfer Hub SIPPs Self Invested Personal Pensions Charges

Self Invested Personal Pensions – Charges

SIPPs have faced some criticism over their charging structures and the impact these have on returns.

Trailing advisor charges have been under special scrutiny.

 

Generally all the charges below apply to SIPP accounts:

 

Admin or Annual Charge – SIPP providers will charge an annual fee and this is usually fixed or as a percentage of funds invested. An admin fee or ‘transfer in’ or ‘transfer out’ fee may also be applied when transferring money in or out of a SIPP account.

Dealing or Transaction Charges – Every time there is a purchase or sale of any investment within a SIPP there will be a charge. These vary from SIPP provider to SIPP provider and will also depend on whether the asset.

Fund Manager Charges – If a fund manager has been appointed then charges will apply for their services. There is usually an annual management charge.

Ongoing Advisor Remuneration – If an advisor is providing yearly reviews they will charge and these charges will come out of your SIPP account.

Pension Transfer Hub SIPPs Self Invested Personal Pensions Scams

Self Invested Personal Pensions – SCAMS

SIPP providers are under increasing regulatory scrutiny due to large numbers of pension scams that have used SIPPs as a wrapper for Non-Standard Assets (meaning cannot be cashed up within 30 days).

They have been targeted by scammers setting up scam investments and then luring unsuspecting SIPP account holders to invest in such investments.

The FCA wrote to SIPP providers as far back as 2012 with warnings to perform better due diligence, specifically:

 

Principle 2 of the FCA’s Principles for Businesses requires all firms to conduct their business with due skill, care and diligence. All firms should ensure that they conduct and retain appropriate and sufficient due diligence (for example, checking and monitoring introducers as well as assessing that investments are appropriate for personal pension schemes) to help them justify their business decisions. In doing this SIPP operators should consider:

 

Ensuring that all investments permitted by the scheme are permitted by HMRC, or where a tax charge is incurred, that charge is identifiable, HMRC is informed and the tax charge paid.

Periodically reviewing the due diligence the firm undertakes in respect of the introducers that use their scheme and, where appropriate enhancing the processes that are in place in order to identify and mitigate any risks to the members and the scheme.

Having checks which may include, but are not limited to: ensuring that introducers have the appropriate permissions, qualifications and skills to introduce different types of business to the firm, and undertaking additional checks such as viewing Companies House records, identifying connected parties and visiting introducers.

Ensuring all third-party due diligence that the firm uses or relies on has been independently produced and verified

Good practices we have identified in firms include having a set of benchmarks, or minimum standards, with the purpose of setting the minimum standard the firm is prepared to accept to either deal with introducers or accept investments, and ensuring these benchmarks clearly identify those instances that would lead a firm to decline the proposed business, or to undertake further investigations such as instances of potential pension liberation, investments that may breach HMRC tax-relievable investments and non-standard investments that have not been approved by the firm

Source: FCA Guide for SIPPs FG 13/8

It’s clear the regulator had SIPP providers on their ‘radar’ as early as 2012 yet there has been a surge in SIPP related claims to the Financial Ombudsman Service (FOS) and claims to the Financial Services Compensation Scheme (FSCS).

Consolidation has taken place within the SIPP provider market place and large review projects are under way to establish which providers hold large amounts of Non standard assets.

Caution is of paramount importance when choosing a SIPP provider.

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