SIPPs (Self Invested Personal Pension) is a type of pension for people happy to make their own investment decisions. Below we will answer some frequently asked questions by expats
Is It Worth Me Putting My Pension in a SIPP?
I am not going to comment, on individual pensions. But personally, I am a big fan of pension freedoms in theory.
If you are U.K expat or still in the U.K the option to have pension investments what you are controlling, it seems a win to me, however, each person has individual circumstances. However, let’s look at why, well look at other developed countries U.S 401k gives you a chance to roll it over into an IRA and invest as you choose your investment.
Australian Supers, get an average 5% and give you more flexibility in the pension over the investment.
While the U.K pension system for me seems very stable, for most pensions plans. The returns are mitigated at best and are not done for individual circumstances. So, therefore, having more freedom, in theory, is a good option and can give you higher returns than what most schemes are getting by investing in low-interest-rate bonds.
The U.K SIPPs platforms are low cost, such as Vangard 0.25% a year, and set portfolios for a novice investor with Nutmeg that has made Sipps your pension somewhat easier. The one downside with Nutmeg is that it is a portfolio based on your risk profile and not personal circumstances, however, is very seamless to use.
Why Should I SIPPs My Pension
Well again I can’t comment on individual cases but some times some pension schemes come with cheap share buys in the company or a set number of shares or perks such as discounts on products if you stay in the company pension. To get the most personal answer to your circumstances, it is worth speaking to an advisor and they will be able to help you. An advisor does need to know as much detail as possible in order to help you the most.
With final salary pensions again, this depends on what scheme it is and how much is offered to get out and your situation. A lot of things need to be taken into consideration such as time frame, objectives, amounts, fees & where you currently are. I would highly recommend seeing a few advisors if you have one of these. But remember they are gold plated and rarely used any more for a reason. In fact, the law now states that you have to see an advisor if your pension is worth more than 30,000 GBP. This stops people from investing in wrong products and fads where they could have the rug pulled from underneath them.
When Is The Best Time To SIPPs My Pension?
Again it depends on your situation but I have seen a few companies such as Royal Mail & British Steel go into administration, if the pension scheme you are in is under threat I would see an advisor if you are considering to move.
I don’t think there is a perfect time, I believe it to be similar to trying to perfectly time the markets, I think staying up to date with the knowledge and if you want to look at regaining control of your pension and controlling your portfolio to suit your individual needs, then it is a good time to ask some questions.
What Are The Drawbacks of a SIPPs
Well, employers don’t have to contribute to your SIPPs and they likely won’t. Also, they may not let you SIPPs the pension if you are still working with the present company.
Benefit of SIPPs
Well the average by a study of Americans by LinkedIn, changes jobs 10 times before the age of 40 and only 3% by a survey by the balance careers found that only 3% stay in jobs, this means a lot of different pension schemes if you don’t manage them well. SIPPs give you the ability, to have one stable pension that you can contribute through the duration of your working life and is portable to wherever you are living currently. For example, you can be working in Singapore and still pay into your SIPPs.
When Can You Draw Your SIPPs & How Much?
With both international and U.K SIPPs, the age is 55 and you can withdraw 25% tax free lump sum at this age. There are also limits, of tax relief for the first 5 years of withdrawing the SIPPs for expats. Also, the Life Time Allowance (LTA) limit of 2020 at 1.055 million GBP is also taxed at 55% on funds over this amount.
If you live in a country with a double taxation agreement with the U.K then it will be subject to U.K growth.
What Happens If My SIPPs Was Lower Than The Life Time Allowance Then The Funds Grow It Higher Than The Life Time Allowance?
Yes, it will be subject to the tax. I recently had a client call up about this (March 2020) as the growth had gone over the LTA limit and would it be taxed the extra 55% on anything over as wanting to withdraw soon. I replied yes it would but the markets seem to have taken care of that problem for you currently.
What Happens If I Die?
Unlike, a normal pension with SIPPs you can add a beneficiary to your pension, whether that be your partner or children. Adding a beneficiary is big plus.
How Much Do I Need To Transfer To A SIPPs?
Offshore you will need 20,000 from all your pension schemes to move offshore.
What Are The SIPPs Options In The U.K?
Hargreaves Lansdown
Charges 0.45% of anything under £250,000 and anything over it has 0.25% going to 0.1% for anything over half a million and no charge on anything over 1 million. This has a wide funds selection is voted one of the top SIPPs providers
Nutmeg
It helps you invest in one of its select portfolios so you don’t have to choose. Fees 0.75% for anything under £100,000 and 0.35% on anything over £100,000.
AJ Bell
It has the lowest fee of 0.25% of anything less than £100,000 0.10% on anything over. Any amount of over 1 million is free. Good fund option nationwide service.
Vanguard
Charges 0.15% a year what is capped at £375 a year it also has no exit charges. The lowest cost provider.
Investor interactive
This is for those with £60,000+ and wants little or no changes to the portfolio, it comes with a few options ranging from £9.99 to £19.99.
Is It Worth Seeing a Financial Advisor To SIPPs My Pension Or Can I Do It?
For a non-defined benefit pension worth under 30,000 GBP and an all defined contribution pension. Is it worth it? They can be, I can give you an example of someone who had a British coal pension and moved it into a scheme that would give him a monthly income before it collapsed and this saved him near half a million pounds. We recommend speaking to advisors so that you can see what they recommend for you and plus if you are unsure about the platforms, market, the differences in investments and taxes, it will be worth it because of the knowledge you come out with.
On the other hand, sadly I have known many that have lost hard-earned money due to bad advice so it’s worth seeing a few qualified advisors and shopping around to see if they are all on the same lines of investments for your situation.
Helpful Tips
- Don’t just look at the fees, many do shop around for the cheapest but this isn’t always the best when it comes to your future security. Would you rather pay slightly more now than risk losing money in your pension?
- Make sure they have experience in pension transfers, simply ask them outright
- They have a good reputation in dealing with situations that are similar to yours
- They have a good standing, they are not going to go bust and where they are putting your hard-earned money isn’t going to go bust.
