Page 37 - DIY Investor Magazine | Issue 37

INVESTING BASICS: IS A SIPP RIGHT FOR ME? A Self Invested Personal Pension - SIPP – is not suitable for everyone, but may be attractive to investors with larger pension funds with the ability to make their own investment decisions that understand the risks and consequences of doing so – by Christian Leeming Remember, your fund needs to provide you with an income during retirement; making poor investment decisions may leave you unable to retire at the age you would like to, or to miss out on the lifestyle you would wish for in retirement. When planning for retirement it is wise to consider all of the available options. Firstly, regardless of whether you decide to supplement it with a personal pension, there are few circumstances in which it does not make sense to take up a workplace pension, particularly if your employer will contribute. Then, consider the best way to supplement this income – an ISA is another tax efficient wrapper that can be used to save for retirement with the additional benefit that you can access funds before age 55 if your circumstances require. Weighing the relative benefits of making additional voluntary contributions (AVCs) into your occupational pension against incurring the additional charges levied on an additional personal pension. If you don’t intend to take advantage of the flexibility and investment choice offered by a SIPP, a low-cost stakeholder pension may be a better option. If your investments will be limited to investment funds offered by the ‘Tier 1’ investment managers, a ‘basic’ SIPP from an investment platform will give you everything you need with low initial and ongoing charges. If you are confident of your abilities, looking to access esoteric investments and will use the wide range of options available such as direct investment into commercial property, a full SIPP may be right for you. You may also change your pension vehicle over time as your circumstances change or the performance of your investments or charges levied by your provider no longer suit; transferring to a SIPP is not difficult but it is always wise to ensure that the exit fees levied by your existing provider, or loss of other benefits are not prohibitive. Consider administration, which can vary considerably from one SIPP provider to another; if you only have a small pension pot, charges will reduce the value of your retirement fund and therefore your income in retirement. If in doubt, consider taking professional advice before opening a SIPP; some online brokers permit advisers third party access to their clients’ accounts in order to make investment decisions on their behalf. CAN I CONSOLIDATE VARIOUS PENSION PLANS INTO MY SIPP? If, like most people, you have moved employers several times during your career, you may have several funds with various providers, which can make them difficult to track. Putting all your pension funds into one place will give you a much better overview of your investments, adapt your investment strategy as necessary and may reduce the fees you are charged by various pension providers. You may not be able to move all existing pension pots into a SIPP and before transferring make sure that by doing so you will not incur a penalty or lose any valuable benefits including guaranteed annuity rates, guaranteed investment returns or membership rights which your policy may include. If you are lucky enough to be a member of a defined benefit, or ‘final-salary’ pension scheme, in most circumstances you should not move it into your SIPP; their benefits tend to be more generous than personal pensions and your former employer bears all the investment risk. 37 Apr 2023 DIY Investor Magazine ·