SIPP self invested personal pension, is it worth it?

[pete12345]

I have read through all the documentation on the moneysavingexpert website and not too sure about the SIPP scheme, seems that SIPP providers charge many fees, including setup free, management fee, dealing fees, transfer fees etc etc.. It also says that all these fees can add up to thousands of pounds each year for larger portfolios.

Has anyone has any experience using this scheme?

 

[DGCAssets]

Hi,

My name is David Garner and I run a small real estate investment business with my Partner dealing primarily in natural resource properties and distressed asset real estate including distressed debt and prime debt.

We have quite a number of Clients that have chosen to participate in our investment projects via their exisiting SIPP and we have also built some excecellent relationships with a panel of properly qualified (AF3 Pension Planning) Financial Advisors that have helped other Clients open SIPPs, either in order to transfer exisiting pensions or as a simple vehicle to participate in a wider range of assets.

The first thing I would say based on my experience is that SIPPs are not for everyone. They can be expensive to own and as an average I have seen total annual fees (all inclusive) range between 0.5% and 2.11%. Others have different fee structures.

Not all SIPPs are created equally either. Some are restrictive and allow only a small selection of the investments that can technically be held within a SIPP under HMRC rules with the main variance being the acceptance or not of commercial property. When we have sourced farms for our clients to buy they have utilised the more expensive SIPPs as they are the ones that tend to be more felxible in terms of assets held and allow commercial properties of the type we deal in.

For larger pension pots of at least £50k minimum then a SIPP might be considered suitable but that would very much depend on your whole reasoning for opening one. There are a number of justifications for opening a SIPP, and the most common tend to be the desire to have more control over what you invest in, a wider choice of investments and more felxible retirement options such as reinvestment in income generating assets rather than taking an annuity.

The sensible thing to do is to speak to a properly qualified IFA with expereicne of SIPPs and who has an exisiting relationship with a range of different SIPP trustees. The Advisor will conduct a complete fact find in order to properly ascetrain your individual circumstances and requirements, and then conduct an anlysis of your current arrangements. After that they can give you individual advice as to the suitability of a SIPP or otherwise based on your own set of circumstances.

I would say that we see a lot of exisiting traditional types of pension that have a whole range of hidden fees that are pretty well hidden away. I saw one myself two weeks ago that had total fees and unwanted insurances totalling 4.51% per year! This makes a SIPP look cheap by comparison and is not untypical for older pensions started before stakeholder was introduced!

Finally, I would mention that there are a LOT of companies out there pushing SIPPs in order to get people to invest their pensions in a range of esoteric investments, indeed I have dealt in a few myself. Be very creful here and conduct your own due diligence. As a guide, it takes something like 80 man hours for us to conduct our due diligence on such products, including site cvisits to vierw assets, independent valuations and financial analysis and we have hardly ever chosen to involve ourselves and have in fact identified all sorts of unsavoury behaviour including outright fraud!

Please please please take some proper advice before doing anything.

If you would like, I can provide you with a direct referral to a suitably qualified Advisor - do let me know if you would find this useful.

David Garner

 

[pete12345]

Hi David,

Thank you very much for the helpful response.

I did a lot of research last night and found some interesting info regarding the SIPP pension scheme. I definitely think I won't be using the SIPP scheme for purchasing any commercial property etc, just because of the huge fees that are involved.

However I read that there are many low-cost SIPP's available for just money saving pensions, especially when the government boosts the funds added by 20%, which I can save up to £2880 per tax year boosted to £3600 - but one downfall of this is that when I do retire I can only withdraw 25% of the funds tax-free, and the rest is made available as a taxable income.

One other interesting point I found, was that the employer can also make contributions to the SIPP pension up to a certain percentage? So I assume if my company did make a regular monthly contributions to my pension I would still have to pay income tax on this amount?

 

[DGCAssets]

Hi Pete

I'm not a financial advisor so I can't advise you on suitability or otherwise of any financial product.

You have hit the nail on the head.... by far the biggest advatage to having a pension of any kind is the governements tax rebate. Putting £100 into a pension means the givernement will top that up by at least £25 and more if you are a higher rate taxpayer, this alone makes having a pension extremely worthwhile in my own opinion.

SIPPs can be more flexible at retirment, and I have noticed that one of the benefits that many people tend to be quite keen on is the fact that you can simply reinvest the pot into income generating investments. With annuity rates hovering around 5% and liekly to continue to fall, investin a pension pot in an income producing investment that delivers say 8% alomost doubles your pension income in retirement.

As I mentioned, some of our clients use SIPPs to participate in our real estate investment projects such as acquiring agricultural properties or debt instruments secured against real estate assets. Whilst the fees can be quite high when comparied to other types of wrapper the tax efficiency tends to comfortably offset this as all the retruns are tax free, so a fee of 2% or 3% is easily offset, especially when you consider that some of these investments have cashed out with more than 15% annualised returns and the SIPP wrapper has meant that the Investor could participate in the first place and didn't pay any tax on the returns.

If you are not looking to hold anything 'sexy' in your SIPP and just wnat to invest in funds then my money would probably be on a provider like Hargreaves Lansdown. Their SIPP is quite restrictive in terms of what you can invest in, but the fees are excellent and their advice is useful in terms of which funds to buy.

Again - just to be certain - I am not offerring financial advice, just opinion born of my experience. Anyone considering a pension or a pension trasfer shouod seek indpendent fiancial advice form a suitably qualified IFA with an up to date AF3 Pension Planning qualification.

Hope that helps.

Best

David Garner

DGC Asset Management

 

[pentel]

As with all pensions the deal is that you put your money into a pot, you may or may not have some input into how the money is invested, subject to the rules of the government of the day... and there will be many different governments over the life of a pension fund.. You will then be able to draw from that fund, at the moment 25% tax free, but for how much longer.... and as for the pension, either by drawdown or annuity, you are dependant again on the rules made up by the government of the day... Ask anyone in drawdown who has seen their pension halved recently...


The question is "how much do you trust the government?", not just this one, but all the governments there will be for the rest of your life.


Rant over...