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When saving for retirement, one of your options is a self-invested personal pension (SIPP). These schemes typically offer a high degree of flexibility and can be very attractive, but they aren’t for everyone. In recent months, many pension providers have begun offering digital SIPPs, which can be easily managed using online portals. This is obviously very convenient but there are also other factors to consider. If you’re tempted to consolidate some of your workplace pensions into an online SIPP, you could be putting a serious amount of your wealth at risk. Read on to find out why.
SIPPs typically offer a high degree of control and can be easy to use
Since the government announced Pension Freedoms in 2015, there has been a large shift towards people taking individual responsibility for managing their pensions. Because of this, it’s understandable that some people might be attracted to the high degree of control that SIPPs offer. If you have a workplace pension, it is typically invested on your behalf, but personal pensions can give you greater flexibility. For example, you can choose which assets to invest in, such as stocks and shares, corporate bonds, or unit trusts. On top of this, digital SIPPs can also be easily managed through online portals, which can be very convenient. According to FTAdviser, many of these pension wrappers even allow paper-based pension transfers. On the face of it, this all sounds very appealing and while they can have some uses, it’s important to be aware that SIPPs aren’t for everybody. If you want to be able to enjoy your desired lifestyle in retirement, it’s important that you manage your pension wealth in the most effective way.
There can be significant downsides to putting your wealth into a SIPP
One of the biggest problems that you could run into if you consolidate your pensions into a SIPP is that you would have full responsibility for where you invested your money. If you aren’t able to make properly-informed decisions, this could lead to your wealth not growing as effectively as it could. Alternatively, you may also expose your wealth to more risk than is necessary. This would mean that if there was a downturn in the stock market, you may lose a significant amount of money and may not be on track to reach your financial goals. This could be a result of not diversifying your investments enough, such as by having too many assets in a particular market sector or geographic area. Another problem that you could run into when consolidating workplace pensions into a SIPP is that some schemes have benefits that you can only access if you remain a member until retirement. For example, one may offer you a guaranteed annuity with favourable rates. If you chose to transfer funds out of such a scheme, you may lose access to these valuable benefits. This could mean that when the time comes to retire, you don’t have as much wealth as you potentially could have. Furthermore, you may also have to pay a significant transfer fee in order to move wealth out of a workplace pension and into a SIPP. This is obviously an issue as this lost wealth could otherwise be working hard for you. Finally, it’s also important to bear in mind that some SIPPs have higher charges than other types of pension. As a result, your pension wealth may grow more slowly.
A financial planner can help you to weigh up the pros and cons of the decision
While there can be some cases when using a SIPP is the most sensible option, it’s important to weigh up the pros and cons of such an important decision. If you make the wrong choice, you may not have enough pension wealth to provide you with a comfortable retirement when the time comes. To be able to make an informed decision as to whether it’s right for you, you may benefit from seeking professional advice. A financial planner can help you to properly assess your situation and decide whether or not you would benefit from the transfer in the long term. This can help to give you greater peace of mind to know that you’re making the right decision.
Get in touch
If you’re considering transferring into a SIPP and want to know if it’s right for you, we can help. Email us at office@verve-financial.com or call 0330 320 5048.
Please note:
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. Transferring out of a Final Salary scheme is unlikely to be in the best interests of most people.
