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Giving Your Pension the Attention it deserves
Tim Walker Head of Office and Divisional Director of Brewin Dolphin’s Exeter office, looks at the advantages of Self Invested Personal Pensions.
Self Invested Personal Pensions or SIPPs have become increasingly popular in recent years among those looking to build up a pot of savings for their retirement. While SIPPs enjoy the same tax benefits as traditional pension schemes and work in a similar way, they can offer greater flexibility and give you access to a wider range of investments.
With standard personal pension schemes, your investments are usually managed for you within one or more ‘pooled’ funds that you have chosen, with your money collected together with that of other investors in the same fund(s). You’ll most likely have chosen this fund when you first started contributing to the scheme or it may even have been a ‘default’ fund chosen for you. SIPPs, on the other hand, are a form of personal pension that allow access to the full range of permitted investments which includes unit trusts, investment trusts, individual quoted shares, bonds, gilts and many other types of investment including commercial property. You can also appoint an authorised investment manager to make the investment decisions for you.
Taking control of your pension investments
It is tempting to contribute blindly each year to a pension without scrutinising what it is you are actually investing in. While this information is often readily available, and indeed must be provided by the pension administrator on a regular basis, it is all too easy to push this paperwork to one side, particularly when retirement is some way off. Second only to the family home, the pension is typically the largest asset an individual owns, yet in many cases it receives little or no attention. However, given the long-term nature of pension investment it is of great importance to have a suitable range of investments, appropriately asset allocated within the portfolio. We would all like to think that, having been encouraged to start contributing to a pension early in our career, and having made sacrifices in those early days in order to do so, that the assets chosen would provide strong growth. Unfortunately, this cannot always be relied upon.
The investments and asset allocation within a pension must evolve and as such they need to be regularly reviewed. For example, as the policyholder gets older it is likely that the balance of assets will change, perhaps with the need to turn away from growth strategies towards a more cautious approach and ultimately, as retirement draws closer, perhaps an element of cash will be included in anticipation of the drawing down of a tax-free lump sum. Some refer to this as the ‘life cycle’ of the pension and each stage of this cycle requires careful consideration. While the balance of assets within any portfolio should reflect the underlying appetite for risk of the policyholder and their capacity to take such risk, this too is not always the case. Once again, this demonstrates a case for regular review and discussion.
Consolidating funds can help you clarify your strategy
There can also be benefits from simplifying and consolidating smaller pensions into a single pot. Over many years of employment with different organisations, it is likely that an individual will accumulate a number of smaller pensions. In isolation each seems trivial, but when consolidated a greater fund can emerge and a suitable and bespoke investment strategy can then be adopted. For those fearing administrative complications, there have been great strides made in recent years to ensure that this is a relatively straightforward and speedy process. Careful consideration still needs to be given to the intricacies and costs of such pension consolidation but - with the appropriate advice - a more coherent retirement plan can be put in place.
And a SIPP is not necessarily an instrument solely for the very wealthy. For those working hard to accumulate a significantly sized fund, but who are still some way off from retirement, it is important to have the most appropriate pension ‘wrapper’ in place as early as possible. Contributions benefit from generous tax relief and can be flexible (subject to certain rules) and the investment solution within the scheme can be moulded according to the value of the investments. A more bespoke solution becomes possible with sums over £150,000, due to the costs and the limited scope for bespoke management below this sum, but there are effective alternatives for sums below this figure.
Personalised advice is key to getting the most out of your SIPP
The bespoke nature of a SIPP means that personalised advice is extremely useful and when properly managed it is a powerful financial planning tool. For the investment manager there is an opportunity to achieve good long- term returns for the policyholder, free from tax constraints, and to make use of the wide range of financial instruments at their disposal. A SIPP also offers a number of interesting features and opportunities along with maximum flexibility when it comes to accessing the pension in retirement.
For many readers I expect a review of their pension situation is long overdue and making use of a SIPP may well be an option worth considering. A few small steps could lead to a satisfying and comforting outcome with the peace of mind that comes from putting in place a suitable plan for the future.
The value of your investment or any income from it may fall and you may get back less than you invested. Past performance is not a guide to future performance. No investment is suitable for all people and should you have any doubt about this service please contact us. Any tax treatment mentioned in this document is based on current legislation and is subject to change
The information contained in this presentation has been taken from public sources and is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness. The opinions expressed in this presentation are not necessarily the views held throughout Brewin Dolphin Ltd. No Director, representative or employee of Brewin Dolphin Ltd accepts liability for any direct or consequential loss arising from the use of this document or its contents.
Brewin Dolphin Ltd is authorised and regulated by the Financial Conduct Authority.