Four considerations Lancastrians should take when switching to a SIPP

As a form of personal pension that you can set up yourself, SIPPs allow you to save over a number of years to build your pension pot for when you reach retirement age.

The great thing about switching your current pension plan to a SIPP is that you have the power to decide how much and how often you pay into your pension, how your investments take shape, and what specific asset classes and stocks you buy into.

SIPPs have grown in popularity throughout recent years, with more than 1.7 million people in the UK investing more than £205 billion in assets into their personal pension plans.

However, some confusion remains about how easy it is to switch to a self-invested personal pension. With this in mind, let’s take a deeper look at four key considerations when setting yourself up with a SIPP:

1. Check Whether the Grass is Greener

Opening a SIPP can come with many advantages, and the freedom to control your own retirement pot. But some existing pension schemes can come with a series of perks that may be worth keeping rather than switching things up.

Before taking the plunge and switching to a SIPP, check the finer details of your existing pension, including its terms and benefits. For instance, some older pensions come with guaranteed annuity rates, while others offer defined benefits that may continue to pay your next of kin after you die.

Some pre-2006 pensions also come with a maximum lump sum withdrawal rate that exceeds the 25% that’s commonplace among modern plans, which could be an advantage if you’re looking to withdraw more funds sooner rather than later.

If you’re unsure whether you have benefits that can’t be matched by your SIPP, consult your financial adviser for some insights.

2. Check Transfer Fees

You should also check the associated fees when switching your pension to a SIPP. When looking to get the most out of your pension, the prospect of costly transfer fees could hinder your current pension pot.

While you should never settle for a pension provider who isn’t helping you to reach your financial goals through your savings, you should check the impact of any exit fees and whether an SIPP can ensure that you overcome any fiscal deficits from charges by the time you reach retirement age.

Be sure to look at the small print on your existing pension plan to get an overview of associated costs, and if you’re unsure of the total amount payable to providers, it could be worth checking with your financial advisor.

In some cases, you could be charged between 1% and 5% of your total pension pot for leaving your current scheme. However, the exit fee for those aged 55 and above is capped at 1%. This means that if you’re in your early 50s and are looking to switch, for instance, it may be financially beneficial to bide your time before switching to a SIPP.

3. Check Your Required Steps

If you’re looking to transfer your pension to a SIPP, you’ll likely be able to complete the process online. However, the switching experience can differ significantly depending on your provider, so make sure to check in advance for your requirements because you may be required to fill out paperwork to complete the process.

Contact the provider that’s receiving the transfer. Most of the time, they’ll only need to know a current value and your policy details to begin switching over. But you should be prepared to take some steps before you can get started saving into your SIPP, and you could be advised to consult your financial advisor or to speak to the trustees of your current scheme.

Subsequently, they’ll contact your current provider to get the transfer started or send you forms to complete.

Although you’re unlikely to be sent on a merry dance while trying to complete a switch to your SIPP, it’s best to be prepared for disruptions to tackle delays head-on.

4. Don’t be Afraid to Negotiate

Remember that SIPP providers want you to save with them, and this means that you’re likely to be able to negotiate on some of their fees to help improve the costs of making the switch to their personal pension.

There are plenty of instances of providers opting to freeze fees as well as offering certain discounts for SIPP property investors, so there’s nothing wrong with asking whether your prospective provider is offering the best deal they can muster.

Looking After Your Retirement

Switching to a SIPP helps you to gain control over your pension pot in a more flexible and hands-on manner. Although self-invested personal pension schemes have become increasingly popular of late, it’s best to avoid the temptation of diving and instead opt to carry out some essential checks.

Matters of existing perks, transfer fees, and possible hoops to jump through could impact your decision and favoured SIPP provider. Likewise, it could be useful to negotiate a better deal from your chosen provider.

When it comes to your retirement, it’s essential that you get your savings right for the best possible level of comfort later in life. By taking the right measures and avoiding diving in, you can provide yourself with the best chance of a sizeable pension pot.