Your Money answers Your Questions: Should I open a SIPP?
Dear Your Money,
I currently have a workplace pension but am considering opening a SIPP. What are the pros and cons?
Sally, aged 35
It’s possible to have both a self invested personal pension (or SIPP) and a workplace pension at the same time and you do not need to close and move the workplace pension in order to open a SIPP. We spoke to Claire Trott, head of pensions technical at Talbot and Muir, to find out the benefits of both schemes.
Firstly it is possible to have a SIPP and a workplace pension at the same time and you do not need to close and move the workplace pension in order to open a SIPP for additional contributions. Should you be considering moving the money in your workplace pension to the SIPP there are a number of areas that you need to consider. This can be a lot easier if you have a financial adviser who understands the complexities of the different schemes and can give you personal recommendations with all the information.
The maximum level of contributions does not differ between the workplace scheme and a SIPP. However, should you leave your workplace pension in favour of your SIPP it is unlikely, although not impossible that your employer will make contributions to your SIPP. Should you want the investment flexibility of the SIPP you could consider transferring some of the fund that has already been built up in the scheme to a SIPP and direct any excess personal contributions to the SIPP, so you don’t lose out on any employer contributions.
Your total contributions, including those paid by your employer, to all schemes will be limited by the annual allowance which is currently £40,000. You will only be able to get tax relief on personal contributions up to your taxable earnings or £3,600 if higher.
Some occupational schemes may not offer all the retirement options available, whereas a SIPP is likely to offer the full range. This isn’t a good reason to move the fund at this time, as you have at least 20 years until you can access your benefits but just something to consider in the future by which time things will have moved on, the occupational schemes may be offering more flexibility.
Historical occupational schemes may have enhanced benefits and you should make sure you are not giving these up if you transfer. Should you open an SIPP in addition this should not have an impact on any enhanced benefits in the workplace scheme.
It will be worth checking what death benefits will be available under your current scheme, these are likely to differ from a SIPP with a reduced range of options for your beneficiaries on death. As with the retirement benefits it is likely that the SIPP would offer the full range of options but the workplace scheme may not at this point in time. This could mean that on your death you beneficiaries could be forced to take the fund as a lump sum (usually tax free if you are under 75) rather than having the option to remain invested and take an income, which could be tax free if you die before age 75.
SIPPs are known for their investment flexibility and this is one area that will differ significantly from the workplace scheme. The workplace scheme will most likely only offer a range of funds whereas a SIPP will allow you to invest in not only funds but directly in stocks and shares as well as larger assets such as commercial property.
Both the types of schemes have positives and negatives and you should consider these fully before making a decision. It isn’t an either or decision either, it is possible to continue in your workplace scheme and also fund the SIPP for the wider ranging benefits.