Is it wise to move my SL pension to my SIPP, advice please

happyhero · 14 June 2017 at 10:55AM

Hi I am a non-tax payer living off my savings and investments within ISA’s and a SIPP. I am 56 with no other income apart from what I just stated. My wife is 55 and works part time earning £10,500/year. I am exploiting my SIPP as much as possible by withdrawing it up to my personal allowance and then claiming the tax back as a non-tax payer and recycling some cash back into the SIPP up to my allowable maximum of £3600 gross. I am also putting money into my wife’s SIPP (and taking out the 25% tax free amount) I set up for her and paying in up to her salary, although considering adding more as I was told I could make gross payments as well beyond her salary. The reason for doing this is it improves our tax credits payments the more I pay into a private pension. However this is not the reason for this post.

My reasoning for doing the above is that whilst I am a non-tax payer and not yet taking a pension I can access my pension funds tax free (which I won’t be able to do once I am receiving a pension) and put the proceeds back into the SIPP and the rest into my ISA.

All the above are with Hargreaves Lansdown and are invested in equities and funds to generate an income for now and the pension years. This way I am utilising my allowance to get my pension funds tax free.

I have a Standard Life pension that I started in November 2002 and my question is should I move it into my SIPP with HL so that I can do the same with that as I mention above, i.e. draw as much as possible tax free each year instead of paying 20% tax on it one day?

By doing the above I can keep everything invested as it is now, albeit a short interruption and not only avoid the 20% tax as much as possible but also get 20% tax relief added to the SIPP on all the contributions (annoying that I am limited to £3600 gross with this but I direct a lot of the money to my wife’s SIPP so we don’t miss out too much).

My worry is how well the SL policy is doing as it seems to have climbed well, but tell me what you think. I paid into it from Nov 2002 until Oct 2005, jointly with my employer at the time.

Values went as follows:-

APRIL 2003 £1103.50
APRIL 2004 £5680.13
April 2005 £10265.00
April 2006 £16889.66
APRIL 2007 £19775.58
APRIL 2008 £19446.11
APRIL 2009 £15488.32
APRIL2010 £20456.49
APRIL 2011 £21887.86
APRIL 2012 £21588.36
APRIL 2013 £24908.29
APRIL 2014 £26640.57
APRIL 2015 £29967.85
APRIL 2016 £28511.31
APRIL 2017 £33746.79

Despite whether I put money in or not it seems to have grown really well but not sure exactly why, what do you think?

And hence my reason for thinking maybe I should leave it alone and not transfer it to my SIPP.

The SL pension was called Group Personal Pension One, it pays out at 65, with profits was not ticked when I took it out unfortunately, and I can’t find anything about a guaranteed Annuity rate (someone asked me about this in the past). It now seems to be called Standard Life Manage Pension Fund and is 100% invested in this. About a year back they were about to start doing something with it to make it safer as I approach retirement, so I would get less growth but as an investor who is used to a few risks I put a stop to this so it would hopefully keep growing as it has until the end.

jamesd · 14 June 2017 at 11:48AM

Why is easy: the investments you chose to use. Effectively identical ones will be available at HL if you want to carry on using them. The growth isn't exceptionally impressive, around 118% increase from April 2009 to April 2017. About 10.2% a year. Looks like this one.

It doesn't have a fixed age 65 payment date and you could take money from it now if you like. SL offer a drawdown product but the HL one is probably better value for money.

dunstonh · 14 June 2017 at 12:01PM

I dont know if it makes any difference to you but SL pre-fund the tax relief. HL do not and you have to wait for it to arrive.

My worry is how well the SL policy is doing as it seems to have climbed well, but tell me what you think. I paid into it from Nov 2002 until Oct 2005, jointly with my employer at the time.

The pension is not making any money. the funds within the pension do that and SL have a range of funds you can use. The range will be very small as its a old fashioned plan but there should be suitable funds to meet your risk profile and objectives. The SIPP will have far more choice but can mirror SL basically. So, performance is not a reason for one over the other.

it pays out at 65

That is just a statement projection age. It pays out when you like.

Linton · 14 June 2017 at 12:10PM

I think it unlikely that with having the money in a normal retail fund that there would be any guarantees but you do need to check with SL.

You need to differentiate between the platform and the fund. It is the latter that provides the return so if you can get equivalent funds elsewhere there may will be no reason not to move. I have checked the SL Managed Pension fund - it looks like a globally well diversified fund split about 80% equities and 20% bonds. Its performance appears to be very similar to other funds with the same bond/equity split.

The first one I checked at random, Newton Multi-Asset Balanced, performed exactly the same from April 2006 when you stopped paying into the SL fund. You cant get the S-L Managed fund from H-L as they dont sell pension funds. However you can get Newton Multi-Asset from H-L and probably most other SIPP providers, and of course probably dozens of other very similar funds.

happyhero · 14 June 2017 at 12:35PM

Wow jamesd, dunstonh, and Linton, I always love to have all your input on my posts, always so useful and informative so thank you guys very very much.

My only concern when I look at the big picture is how to view the 10% jamesd mentions; to elaborate within my investments in my ISA and SIPP I quite often manage 100% plus returns on an equity for instance but on my overall portfolio it’s not always possible to achieve even 10% on the year, obviously the various investments are all going in various directions with me intervening to try and keep it that they are all going up. This year has been crazy and I am looking at well over 20% growth on my portfolio (maybe much more as it does not show signs of easing up yet)…..if only it was always like that.

So from your reply dunstonh, do I assume you have inferred that you would move it into the SIPP basically to improve the return if for no other reason?

But dunstonh, you seem to shoot that theory in the foot straight away by saying performance is not a reason to switch, would not the fact that as you mention SL have an old fashioned plan and limited funds mean it would be worth switching to HL, a company where I will have much bigger choice and so a potential to get bigger returns make it worthwhile? What would you do in my shoes and why?

Linton can I ask the same question of you as I asked dunstonh, SL have an old fashioned plan and limited funds wouldn’t that persuade you to switch to HL, a company where you would have much bigger choice and so a potential to get bigger returns? What would you do in my shoes and why?

dunstonh · 14 June 2017 at 12:58PM

So from your reply dunstonh, do I assume you have inferred that you would move it into the SIPP basically to improve the return if for no other reason?

No. I am not saying that. I was making the point that it is not the pension that makes the money. It is the investments that make the money. If you have a stakeholder pension, personal pension or SIPP and they all invest in the same fund, then they will all have the same return. So, it doesn't matter whether its a SIPP or PPP. What matters is the investment and the SIPP may have some better options and will have worse options. It will also have comparable options (in which case, the difference to consider then is features and charges)

would not the fact that as you mention SL have an old fashioned plan and limited funds mean it would be worth switching to HL, a company where I will have much bigger choice and so a potential to get bigger returns make it worthwhile?

The SL PPP may have 30-50 funds. HL SIPP will have access to over 30,000 options. How many are you going to be invested in? Range of options is not a reason to switch. What you use or intend to use can be a reason. If the PPP can do the job for you cheaper/better than the SIPP then stay with it. If it cant then move it.

What would you do in my shoes and why?

What I would do doesn't really matter. The options I look at are different to those going DIY as IFAs have different products/providers to the DIY side. PPPs are heavily used on the advice side but rarely used by any of the DIY providers which chose to use SIPPs given their lower regulatory requirements (compared to PPP).

The SL plan you have may be one of their lower cost ones or it could be their default charge. I have seen them between 0.3% p.a. to 1% pa. (assuming internal funds). HL is going to cost you 0.45% before you have even selected the investment funds and you are looking at 0.22% to 2.00% as your range of charges on multi-asset funds they offer.

If you have a 0.3% charging plan with SL and the managed fund fits the job, then why move it to a modern SIPP charging 0.45%+x.x% fund charge? Old does not always mean bad. There are some gems out there with legacy plans. And some duff ones too.

Bottom line is that SL will not have the bells and whistles that the SIPP has. However, if you are not going to use those feature, then dont include them in your research. Decide what you want from a pension as a must have, nice to have and dont care about. Then look at which option best achieves that whilst considering the pros and cons of the options.

Linton · 14 June 2017 at 1:18PM

happyhero wrote: »

My only concern when I look at the big picture is how to view the 10% jamesd mentions; to elaborate within my investments in my ISA and SIPP I quite often manage 100% plus returns on an equity for instance but on my overall portfolio it’s not always possible to achieve even 10% on the year, obviously the various investments are all going in various directions with me intervening to try and keep it that they are all going up. This year has been crazy and I am looking at well over 20% growth on my portfolio (maybe much more as it does not show signs of easing up yet)…..if only it was always like that.

Linton can I ask the same question of you as I asked dunstonh, SL have an old fashioned plan and limited funds wouldn’t that persuade you to switch to HL, a company where you would have much bigger choice and so a potential to get bigger returns? What would you do in my shoes and why?

I believe the main drivers of better returns from funds are the risk/return balance and diversification rather than finding a nugget of gold amongst a very wide choice. Presumably you have been happy with the SL fund for the past 10 years. Standard Life have a wide range of pension funds, though we dont know how many are accessible from your GPP.

Another factor: I would guess but dont know that the Standard Life charges are significantly lower than H-L's.

On balance I think I would consolidate into a cheaper SIPP than one from H-L on retirement as managing a portfolio in drawdown from multiple pots is a hassle. However my strategy is very different to yours as I dont intervene at all "to try and keep it that they (my investments) are all going up". My growth portfolio is invested in 14 highly diversified funds which are largely left alone to do what they will.

NotSkint · 14 June 2017 at 4:47PM

Happy Hero,
Not directly answering your question but want to raise a couple of points from your original post;
I am unclear about you contributing more than your wife's gross salary to her SIPP. My understanding is that the max you can contribute is 100% gross salary upto 40k and carry forward rules won't assist you as your wife's earnings aren't high enough to benefit. Please check this out a bit more for your own piece of mind.
Also be aware if you take 1p more than the 25% tax free lump sum, I believe you then limit what further contributions you can make.
Again please check this out.
Hopefully others more knowledgeable can chip in, even though it isn't directly what you were asking.

happyhero · 14 June 2017 at 7:39PM

NotSkint wrote: »

Happy Hero,
Not directly answering your question but want to raise a couple of points from your original post;
I am unclear about you contributing more than your wife's gross salary to her SIPP. My understanding is that the max you can contribute is 100% gross salary upto 40k and carry forward rules won't assist you as your wife's earnings aren't high enough to benefit. Please check this out a bit more for your own piece of mind.
Also be aware if you take 1p more than the 25% tax free lump sum, I believe you then limit what further contributions you can make.
Again please check this out.
Hopefully others more knowledgeable can chip in, even though it isn't directly what you were asking.

Hi NotSkint thanks for your input, I'm no expert but I think I can answer some of what you have said.

I made an error one year in my calculation of how much someone who is unemployed can contribute (£3600 gross) to a SIPP, it was just a stupid mistake I made not being careful with my maths and I spotted it straight away and contacted HL about it, and it got corrected.

A bit messy but I felt I had to put it right rather than let it go through and risk future mess and problems. It was at that time that I spoke to HL about it and they said it is ok to contribute money above the allowance but I must make it clear that it is a gross contribution at the time and so will not get me any tax relief.

I chose to leave the extra contribution on the account as a gross payment although not that enthusiastically as I realised I would get no tax relief and one day 20% tax would be taken on anything I take out (ignoring the 25% tax free part for the moment). But I have had to learn fast and know a bit more since then. As soon as I hit 55 I started getting much more involved with this stuff now that I could do more being at a pensionable age.

I also asked at that point if my wife could do the same and the answer was yes but only as a gross contribution. Before I try this which I might want to this year, I feel I will need to contact HL again just to be sure I have everything right. But I definitely contributed more than my allowance that year as a non-tax payer.

As for the taking 1p more than the 25% will cause a limit to be inforced, yes this is correct. When I took more than the 25% earlier this year I had a £4,000 limit imposed on me for any future contributions, but this does not matter to me as my limit as a non-tax payer was £3,600 anyway and I do not expect to get an income in the future other than from my ISA and pensions, so I'm not expecting the £4,000 limit to cause me any problems.

Of course things could change and cause a problem, but I've taken that into consideration as much as possible and decided the benefits for me are worth it.

NotSkint · 14 June 2017 at 8:26PM

Hi HappyHero,
You are aware already, so that is good; just wanted to raise it in case you weren't.
On the tax credit side, how will it work for you if your pension contributions are greater than your earned income, as once you do the allowable deduction you'll be left with negative earnings.
I wonder how that will compute?
I pay most of my wife's salary into her pension but have always kept a reasonable amount back, not because of any rule, but just because I feel it looks really odd.

okydoky · 14 June 2017 at 11:16PM

NotSkint wrote: »

Hi HappyHero,
On the tax credit side, how will it work for you if your pension contributions are greater than your earned income, as once you do the allowable deduction you'll be left with negative earnings.
I wonder how that will compute?
I pay most of my wife's salary into her pension but have always kept a reasonable amount back, not because of any rule, but just because I feel it looks really odd.

My circumstances were similar to that of the OP 4 years ago, but have never had Working Tax Credits - never for one minute did I think we might qualify despite wife putting all of her salary into a pension, guess I missed a trick there then!!

Is it wise to move my SL pension to my SIPP, advice please

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