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  • FIRST POST
    • normanna
    • By normanna 14th Jun 17, 1:52 PM
    • 4Posts
    • 1Thanks
    normanna
    Is a SIPP protected?
    • #1
    • 14th Jun 17, 1:52 PM
    Is a SIPP protected? 14th Jun 17 at 1:52 PM
    Hi

    Looking for some advice please. My husband and I are thinking of transferring our defined benefit pensions to SIPPs. We will be speaking to an IFA and getting up to date transfer values. The values last year were in the region of 800k to 900k each. We are 50 and 51.

    We want to retire at 55 and our company will impose a 20% actuarial reduction and we want a bit more freedom to use the money and leave what remains in our wills hence us considering a transfer. How can we ensure our monies are protected in terms of pension company or funds going bust?

    Thanks
Page 1
    • dunstonh
    • By dunstonh 14th Jun 17, 2:26 PM
    • 88,329 Posts
    • 53,549 Thanks
    dunstonh
    • #2
    • 14th Jun 17, 2:26 PM
    • #2
    • 14th Jun 17, 2:26 PM
    My husband and I are thinking of transferring our defined benefit pensions to SIPPs.
    Why SIPP and not PPP? (nothing wrong with SIPP. Just asking why you eliminated PPP)

    How can we ensure our monies are protected in terms of pension company or funds going bust?
    If you use direct investments in the SIPP then you get no FSCS protection (unless you use an adviser and the advice was wrong). If you use unit trust/OEICs you get £50k protection per fund house.

    It isnt really a worry about FSCS at SIPP level, which you get £50k, as the SIPP is not who you are invested with. Your investments are ring fenced from the SIPP provider.

    PPPs get 100% FSCS protection with no upper limit.

    Unit linked funds, in the mainstream, invest in many different areas. You will likely have a portfolio of funds. Overall, your portfolio is likely to hold no more than 2% in any one investment within the funds. So, you would need a catastrophic failure to lose the lot and at that point, you will be boarding the windows, getting weapons and a large stock of water and baked beans as we re-enter the dark ages.

    If you go off mainstream or into daft things like Cape Verde property, biofuels, forestry, student accommodation, storage pods etc then the chance of you losing the lot is extremely high and you get no FSCS protection on those things (unless an adviser put you in them).

    So, if you want the most protection, use a PPP. If you happily accept unit trust/OEICs as being safe enough (and in reality they are) then they are fine in a SIPP. Just avoid non-mainstream and do not use Shares, ITs or ETFs (and as a new investor, no adviser is likely to recommend such things).
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • Linton
    • By Linton 14th Jun 17, 3:38 PM
    • 7,971 Posts
    • 7,780 Thanks
    Linton
    • #3
    • 14th Jun 17, 3:38 PM
    • #3
    • 14th Jun 17, 3:38 PM
    Hi

    Looking for some advice please. My husband and I are thinking of transferring our defined benefit pensions to SIPPs. We will be speaking to an IFA and getting up to date transfer values. The values last year were in the region of 800k to 900k each. We are 50 and 51.

    We want to retire at 55 and our company will impose a 20% actuarial reduction and we want a bit more freedom to use the money and leave what remains in our wills hence us considering a transfer. How can we ensure our monies are protected in terms of pension company or funds going bust?

    Thanks
    Originally posted by normanna
    A pension company or fund company going bust is very different to a bank going bust. When you deposit money in a bank, the bank owns your money and they can do what they like with it. All you have is a promise by the bank to pay it back. If the bank goes bust and cant pay you back you lose all your money unless you are covered by a compensation scheme.

    Pension companies and funds dont own your money, they cant use it to pay their debts. The invested money remains yours, the companies just have the right to manage it in line with their remit. If they go bust some one else will take over responsibility for managing your money. The risk is the possibillity that this may take a while to sort out.

    So it's difficult to see where a compensation scheme would come in. The only situation people have thought of is fraud. Which is why you should only invest with regulated companies.
    • StellaN
    • By StellaN 14th Jun 17, 4:06 PM
    • 140 Posts
    • 39 Thanks
    StellaN
    • #4
    • 14th Jun 17, 4:06 PM
    • #4
    • 14th Jun 17, 4:06 PM
    So, if you want the most protection, use a PPP. If you happily accept unit trust/OEICs as being safe enough (and in reality they are) then they are fine in a SIPP. Just avoid non-mainstream and do not use Shares, ITs or ETFs (and as a new investor, no adviser is likely to recommend such things).
    Originally posted by dunstonh
    Why not IT's? I know they can be more volatile but they also have a lot of positives going for them. I don't consider myself an experienced investor but nevertheless, I do hold some IT's in my portfolio.
    • dunstonh
    • By dunstonh 14th Jun 17, 4:30 PM
    • 88,329 Posts
    • 53,549 Thanks
    dunstonh
    • #5
    • 14th Jun 17, 4:30 PM
    • #5
    • 14th Jun 17, 4:30 PM
    Why not IT's? I know they can be more volatile but they also have a lot of positives going for them. I don't consider myself an experienced investor but nevertheless, I do hold some IT's in my portfolio.
    Originally posted by StellaN
    As they have no FSCS protection whatsoever. They also have increased risks over the closest equivalent UT/OEC (NAV pricing and gearing).

    So, for a new investor showing the concerns the OP is, they are best avoided.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • Economic
    • By Economic 14th Jun 17, 5:39 PM
    • 77 Posts
    • 55 Thanks
    Economic
    • #6
    • 14th Jun 17, 5:39 PM
    • #6
    • 14th Jun 17, 5:39 PM
    As they have no FSCS protection whatsoever. They also have increased risks over the closest equivalent UT/OEC (NAV pricing and gearing).

    So, for a new investor showing the concerns the OP is, they are best avoided.
    Originally posted by dunstonh
    Would an IFA ever recommend investment trusts? FSCS protection is a red herring.
    • k6chris
    • By k6chris 14th Jun 17, 5:48 PM
    • 85 Posts
    • 110 Thanks
    k6chris
    • #7
    • 14th Jun 17, 5:48 PM
    • #7
    • 14th Jun 17, 5:48 PM
    Why SIPP and not PPP? (nothing wrong with SIPP. Just asking why you eliminated PPP)
    Originally posted by dunstonh
    OK, I'll bite - what is the difference between a PPP and a SIPP? Can you do drawdown from both? When would you use one and not the other??

    Thanks
    EatingSoup
    • dunstonh
    • By dunstonh 14th Jun 17, 6:17 PM
    • 88,329 Posts
    • 53,549 Thanks
    dunstonh
    • #8
    • 14th Jun 17, 6:17 PM
    • #8
    • 14th Jun 17, 6:17 PM
    Would an IFA ever recommend investment trusts?
    Yes they would. They are not as common as UT/OEICs but they are certainly used by IFAs.

    FSCS protection is a red herring.
    its not a red herring. It is certainly not as important as it is on savings accounts but it does need to be a consideration depending on the person. An experienced investor is likely to not give it a second thought though.

    OK, I'll bite - what is the difference between a PPP and a SIPP? Can you do drawdown from both? When would you use one and not the other??
    Not a lot of difference nowadays. Both can offer exactly the same features (drawdown etc). Indeed, the UK's largest provider of drawdown is a personal pension.
    PPPs stick to investment funds only as they cannot offer unregulated investments. SIPPs can go wider than that.
    PPP providers pre-fund tax relief and switches and most cover pre-fund withdrawals as well. Only a few SIPPs do some or all of those. That is not type specific but more provider specific.
    PPPs getting better FSCS protection is the other difference.

    In terms of distribution, the DIY providers have virtually all gone SIPP. This is because the SIPP does not have the same solvency requirements that a personal pension provider has to put aside. Also, personal pension providers have to do greater due diligence on the investments they offer (which is why FSCS protection is 100% with no upper limit). SIPPs are having to increase their solvency levels and increase their due diligence but there is still a gap between the two.

    The intermediary side is still heavily PPP. Even some of the platforms use a PPP instead of a SIPP. However, there are not as many "traditional" non-platform PPPs you would use nowadays. But there are some very good ones. For example getting 0.4% p.a. in total for fund and provider with some good investment options (passive and managed available).

    If you are a DIY investor, then expect a SIPP and don't be concerned about PPPs. If you are using an IFA then expect either a SIPP or a PPP
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • normanna
    • By normanna 14th Jun 17, 7:22 PM
    • 4 Posts
    • 1 Thanks
    normanna
    • #9
    • 14th Jun 17, 7:22 PM
    • #9
    • 14th Jun 17, 7:22 PM
    Thanks for your views folks. I haven't ruled anything out but was using the term SIPP in a generic sense for a personal pension. I'll certainly be considering PPP also. Having been in a defined benefit scheme all our lives we haven't had any exposure to other pensions and other options haven't been on my mind until now.

    We have sizeable exposure to the stock market, (in ISAs) which we manage ourselves so we wouldn't be looking for anything risky with the pension. We also don't want to pay huge management fees either if we are looking at low risk but my main concern was protection
    • greenglide
    • By greenglide 14th Jun 17, 7:46 PM
    • 2,725 Posts
    • 1,724 Thanks
    greenglide
    If the transfer values are truly 800k to 900k are you not going to run into problems with the lifetime allowance of £1,000,000?
    • The_Doc
    • By The_Doc 15th Jun 17, 9:06 AM
    • 14 Posts
    • 11 Thanks
    The_Doc
    The actuarial reductions will give an increased buffer with regards to the LTA.
    • StellaN
    • By StellaN 17th Jun 17, 4:59 PM
    • 140 Posts
    • 39 Thanks
    StellaN
    As they have no FSCS protection whatsoever. They also have increased risks over the closest equivalent UT/OEC (NAV pricing and gearing).

    So, for a new investor showing the concerns the OP is, they are best avoided.
    Originally posted by dunstonh
    What would be an equivalent UT/OEIC to Scottish Mortgage IT?
    • Linton
    • By Linton 17th Jun 17, 8:38 PM
    • 7,971 Posts
    • 7,780 Thanks
    Linton
    What would be an equivalent UT/OEIC to Scottish Mortgage IT?
    Originally posted by StellaN
    There isnt anything exactly equivalent. Many of these older ITs are conviction funds which invest in selected companies and sectors the manager likes often from anywhere in the world. The nearest perhaps are Global UTs/OEICS that invest in a similar basis such as those from Lindsell Train and Fundsmith. But their managers may well not share the same enthusiasms. Scottish Mortgage appears to have a high risk/ high return strategy exemplified by large holdings in high tech companies such as Tesla.

    An investment in such a fund is very much a belief in the abilities of a particular manager, trustnet gives no other funds managed by James Anderson who runs Scottish Mortgage.
    Last edited by Linton; 17-06-2017 at 8:40 PM.
    • StellaN
    • By StellaN 18th Jun 17, 1:53 PM
    • 140 Posts
    • 39 Thanks
    StellaN
    There isnt anything exactly equivalent. Many of these older ITs are conviction funds which invest in selected companies and sectors the manager likes often from anywhere in the world. The nearest perhaps are Global UTs/OEICS that invest in a similar basis such as those from Lindsell Train and Fundsmith. But their managers may well not share the same enthusiasms. Scottish Mortgage appears to have a high risk/ high return strategy exemplified by large holdings in high tech companies such as Tesla.

    An investment in such a fund is very much a belief in the abilities of a particular manager, trustnet gives no other funds managed by James Anderson who runs Scottish Mortgage.
    Originally posted by Linton
    I already hold Fundsmith as well as Scottish Mortgage and in recent years they have done well, however I am now considering selling SMT mainly due to the high risk profile but still not sure if this would be a wise move.
    • goRt
    • By goRt 19th Jun 17, 12:31 PM
    • 229 Posts
    • 134 Thanks
    goRt
    OP, You need to be aware of Life Time Allowance (LTA) rules - there are numerous tests (at Benefit Crystallisation Events - BCEs) which *will* have significant tax implications.
    Current LTA is £1m which could be tested when you start taking your SIPP, and is again tested at age 75 - the design of these tests FORCES you to take all fund growth out of the SIPP to stay within the LTA limit. (there is LTA indexation from 2018, but this could be 'adjusted' at any time).

    I'm not and IFA or anything connected with such, but I did retire at 50 and manage my SIPP, etc. focusing on the LTA.
    • MPN
    • By MPN 19th Jun 17, 2:35 PM
    • 188 Posts
    • 60 Thanks
    MPN
    I already hold Fundsmith as well as Scottish Mortgage and in recent years they have done well, however I am now considering selling SMT mainly due to the high risk profile but still not sure if this would be a wise move.
    Originally posted by StellaN
    If you did decide to cash in on SMT which fund would you reinvest the money to run alongside Fundsmith?
  • jamesd
    With £675k in the £900k pot after taking the tax free lump sum it's quite easy to avoid the lifetime allowance. Average UK stock market growth has been about 5% plus inflation, about £33,750 a year plus inflation. Well within the basic rate tax band so just plan to withdraw the whole basic rate band every year and deliberately gradually reduce the value. Just reinvest anything above spending outside the pension.
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