Should I transfer my SIPP?
A Self-Invested Personal Pension (SIPP) is a type of DIY pension which allows the saver to choose their own investment mix from a much wider range of assets than they might get in other pension schemes. This includes listed and unlisted shares, funds, investment trusts and even buy-to-let property. They can change their contributions as they wish, and (usually) manage their investments and monitor the performance of their pension online. Contributions into a SIPP benefit from an extra 20% bonus from the government in the form of basic rate tax relief, and you can claim back even more if you are a higher rate tax payer. With a SIPP, you can access your money from the age of 55, and you can take 25% of your pot as a cash lump sum, tax free. SIPPs are a popular pension product in the UK: the market has grown by 55% since 2016 and is now worth £2.4bn, according to GlobalData analysis.
Since the introduction of pension freedoms, savers have much more flexibility and control around what they do with their pension pots, including transferring their money between different types of schemes. Between 2014, when the pension freedom changes were first announced, and today, volumes of transfers into SIPPs have almost doubled, while values have risen 121%. This article looks at whether a SIPP to SIPP transfer could be a good option for you, and outlines some of the benefits and risks to consider. If you are thinking of transferring a different type of pension, read our comprehensive guide here.
Can my SIPP be transferred to another pension provider?
Yes, you can transfer your SIPP to a SIPP run by another pension provider. In fact, you have a range of pension transfer options: usually you’ll be able to transfer a pension into any other UK-registered scheme or qualifying recognised overseas pension scheme (QROPS).
You can authorise a SIPP transfer yourself, you don’t need to do it via a financial adviser. Usually you will need to fill in forms with your current and future pension providers, and request a formal pension transfer value from your existing provider or scheme administrator.
Reasons to consider transferring your SIPP
There are a number of reasons why you might look at pension transfer options. You may want to consolidate a number of small pension pots into one larger one, or simply leave a scheme that is closing. Perhaps you want to move out of an outdated, expensive scheme to one which offers greater investment choice, better performing funds and more value for money. Maybe you want a provider that uses more advanced technology so you can manage your pension online or via an app, gives better customer service, or offers research and buy lists which can help DIY investors make informed investment decisions. Perhaps you are moving abroad and want to join a local pension scheme, or you are nearing retirement and want to find a vehicle with drawdown options better suited to your needs.
You don’t have to wait until you are 55 to transfer, you can do it any time as you are not actually accessing your savings pot, just moving it. You can have a SIPP alongside any other pension vehicles you may already own, as long as you stay within the annual contribution allowances.
The risks involved in transferring your SIPP
Bear in mind that there can be risks and complexities involved in transferring a SIPP. Given there may be a lot of your hard-earned cash at stake, you might want to consider taking professional advice before you make any decisions (more on this in the next section). Among the key risks are possible exit penalties for transferring out of a pension scheme, or loss of bonuses, and these could cancel out any gains you might make from cheaper charges, so make sure you check the small print.
Exit fees are a big issue, and a bone of contention between the financial regulator and the industry. Investment platforms and brokers will usually levy an exit charge on every single holding you own and, if you have held your SIPP for a long time, you may have a large number of different investments so charges can quickly mount up. The providers say these fees are necessary to cover the work involved in transferring investments to a competitor, but critics argue the charges are designed to deter consumers from switching. The FCA wants exit charges to be “proportionate” to the real cost of a customer leaving, and not act as a barrier to exit.
Some providers offer to cover the cost of exit fees if you switch to them (Bestinvest and Fidelity, for example, both pay up to £500 in exit fees when you leave your current provider in favour of their SIPPs). Another option which might save you money is to consolidate your holdings into fewer positions before you make the move (for example, some providers won’t charge you to convert your fund holdings into other funds). It could work out cheaper in this case to put all your cash into one or two tracker funds and then move these across to a new pension provider, but you’ll need to do your homework to make sure. Hargreaves Lansdown, for example, applies fees based on a per fund basis, so by consolidating the number of funds you hold you can reduce the overall fee you are charged.
If you’ve done the sums and you still think it’s worth making the switch, you’ll need to ask your provider for a transfer value for your pension pot. This will be the value of the funds that make up your pension, but might change when the final transfer goes through depending on the level of the markets and the performance of your investments at that time. If your pension pot is transferred in cash, this involved selling all your investments. It means you will be out of the market for a while until you reinvest and it may cost you more to buy back your original holdings (both in terms of their market value and any transaction or dealing costs your new SIPP provider imposes).
If you are close to retirement and won’t have long to rebuild your portfolio after such losses, a transfer might not be right for you. Instead, you may be able to choose re-registration, also known as an in-specie transfer, which is where your investments are transferred to the new provider without the need to sell – you remain invested throughout the transition, although this is a more complex process and will usually take longer. There are also no guarantees your new provider will offer access to all your existing holdings. A number of pension providers suspended in-specie transfers while awaiting the outcome of a challenge by HMRC on whether such contributions qualify for tax relief. If your provider offers both options, you will need to compare the costs involved, there could be a fee to pay for the transfer of each of your holdings, or there could be fees associated with cashing them out.
You also need to know if your pension offers any perks or bonuses which you would forfeit if you leave the scheme.
Although most SIPPs don’t offer these, some pension funds come with valuable benefits like guaranteed annuity rates (GARs) which promise to give you a higher rate if you use your pot to buy an annuity when you retire.
Some older (pre-2006) pension schemes gave members the right to take a tax-free lump sum of more than 25% of the total pot (25% is the amount you can take under current rules). But savers transferring into a different pension scheme would lose this entitlement, so it’s worth double checking if your scheme has anything like this in place before transferring out.
Think about the new scheme you are transferring into – what sort of investment options does it have? Although it might offer exactly what you want now, are there enough options that the scheme will still be suitable for your needs when your risk tolerance changes closer to retirement? Are there lower risk options as well as racier investments to buy? Will the type of investments on offer require the expense of ongoing financial advice to manage the risk appropriately?
In terms of the mechanics of transferring between SIPPs, the process may vary depending on the type of transfer you choose. In theory, much like switching your broadband or your bank, you just give your details to the new provider and they sort it out for you. However, timescales may vary – from weeks to months or even longer. The financial regulator, the FCA, said in its July market study into investment platforms that it wants to improve competition among providers and make switching easier for consumers. It found that customers who would benefit from switching between providers often find it difficult to do so: in fact, the FCA said 7% of consumers have tried to switch at some point but have given up because of “the time involved, the complexity of the process and exit fees”. The report also highlighted that more price-sensitive consumers may struggle to shop around and choose a lower cost platform. In fact, most non-advised consumers who invest through platforms don’t shop around.
You should have at least a 30-day cancellation period built in to your pension transfer in which you have the option to change your mind. However, if you do get cold feet, you may find that your old scheme won’t take the money back once you have initiated the transfer. If this is the case, you will need to find a new provider to accept the transfer. Check the details carefully and don’t rush into anything: you need to be certain you are making the right choice before you start the process.
Do you need financial advice to transfer your SIPP to another provider?
Ok, so we’ve covered the pros and cons of transferring a SIPP, and now you may be wondering ‘can I transfer my pension myself?’. The answer is yes, you can. Although legally you have to take regulated financial advice before you transfer a defined benefit pension (such as a final salary scheme) worth more than £30,000, this rule does not apply to other types of pension schemes like SIPPs.
This means you could make the decision to transfer your SIPP and just do it yourself. You might feel that professional advice is unnecessary and your switch should be fairly straightforward. If you do choose to take advice, the main downside is the cost, as you will have to pay the adviser’s fee plus any switching costs, which could wipe out any potential savings. This is something the FCA highlighted in its platform review as an issue which could deter consumers from moving to cheaper investment platforms. It said: “Many advisers in our sample charge an extra fee for switching on top of their ongoing advice fee, which can cancel out the potential benefit of lower platform fees and act as an additional barrier.”
However, it might be good idea to take advice in certain scenarios as it could pay for itself in the long run. For example, if you have a lot of money in a SIPP, and you know you’re paying over the odds in fees and charges but you aren’t sure which is the best option to switch to, the right advice could be cost-effective. Plus, if an expert casts their eye over your investment choices and makes recommendations to improve your risk level and potential for returns, your pension pot could grow much more quickly and help you meet your financial goals. This could easily offset the cost of the advice in the long term. If you don't already have a financial adviser you trust then MoneytotheMasses.com has partnered with VouchedFor to offer readers a free pension healthcheck with a local IFA which you can take advantage of. Alternatively, read our article on how to choose a financial adviser you can trust.
If you’d prefer to do the legwork yourself, start by reading our round-up of the best and cheapest SIPPs on the market.
Looking for a financial adviser near you?
Do you need financial advice? An independent financial adviser can show you how to make the most of your money.
Simply find your nearest qualified and regulated adviser using the UK’s largest adviser search.