Guaranteed rate SIPP?

TicksyUK

Hi all,

Not sure if anyone can help me but I've recently been looking to transfer my pension to something that will perform better.

I've spoken to an ifa who has come back with the advice to move to a fixed rate SIPP.

From what the advice says, it guarantees that I will receive a certain return per year and a certain amount at retirement.

I'm a little concerned as I'd never heard of a guarantee like that in a pension before, and at 6.5% it seems too good to be true.

Am I right to be wary? Is there more than meets the eye?

FWIW I'm 25 years from retirement.

Thanks in advance.

Aegis

I'd love to be able to offer a guaranteed 6.5% pension to my clients. Sadly such things don't exist, as a 6.5% rate of return implies that there must be a level of risk taken on in respect of the higher-than-cash return rate.

What is the name of the underlying investment?

dunstonh

A SIPP is just a container for investments. The investments provide the return.

I am not aware of any regulated product offering 6.5% guaranteed on the market at this time. So, what is it? (I am suspecting the worst at the moment)

Ticksy

Apologies. Just checked. It's a fixed rate and a projected fund.

I assumed that the fixed rate would remain the same, but now looking at it, it seems to be fixed for ten years. That's still quite a return though.

The pension company is Avalon. The investments appear to be called "HJ *something*bonds 2024"

Ticksy

The investments are screenshotted at imgur.com [dot] com/BbhQmSH

jamesd

That product does not have a guaranteed 6.5% return. It uses three investments that provide an average return of 6.5% but there is no guarantee and that is before charges and inflation, so it's less than the main UK stock market. Then assorted other things are added to try to increase protection.

If your IFA is telling you that the returns are guaranteed you need a different IFA or more detauils on just what is guaranteed, a word withi very specific meaning, who is providing the guarantee and how financially capable they are of providing it.

The use of the GXG main market is also a concern since that's not exactly a mainstream market.

Just what did you tell your IFA to get them to come up with this recommendation and how are they justifying it to you?

If you just want asset-backed investments in a pension you can get more than 10% using peer to peer investing, or combined asset-backed and protection fund covered, but neither claiming to be guaranteed.

How did you come across this IFA? Did they or their representative phone you first?

The screen shot also worries me because of this conflict:

Investment structure part says European Equity is 30%.
The Investments section says "European Equity HJ SME PLC £4,000,000 8% 2024 Bonds".

Bonds aren't equity and having the same factsheet describe them as both equity and bonds causes me to be very concerned that you may not be dealing with a real IFA but instead might be dealing with scammers who don't even know the difference between equities and bonds. It appears that it may be these bonds.

Ticksy

Thanks for replying. If that's the case, what does the "fixed return" refer to?

If that isn't fixed, then what is it?

Ticksy

Just seen your edit. They cold-called me, and came to visit. They are covered by the FCA and protected by the FSCS, so I was happy to get advice. I was asked a series of questions and was quite adventurous in my approach, so when they came back suggesting an adventurous approach, I felt it reflected my needs.

jamesd

It's a fixed return. Fixed doesn't mean guaranteed. It just means that the bonds will pay on average 6.5%. Provided the company whose bonds you are buying stays solvent and manages to make all of the payments. The risks include the credit quality of the company whose bonds you'd be buying.

jamesd

Run a mile. Never deal with any financial firm that cold calls you. Never. Given the discrepancies and claims I think it's most likely that you are being scammed or sold an inappropriate product.

For adventurous investing this product doesn't come close to offering appropriate investment returns.

So tell us, what do you have already, how has it performed and what sort of performance are you looking for? As a baseline, non-adventurous investing in the main UK stock market has averaged around 5% plus inflation, around 8% total at the moment, over the last hundred plus years.

jamesd

If you want something that might be considered adventurous, have a look at 11% over 3 years from Ablrate P2P. They recently signed the documents to the first SIPP provider to carry them. It's adventurous in part because it's a relatively new peer to peer firm and in part because of the nature of the asset-backed investments involved sometimes, which can be foreign firms or new startups. There are also a fair number of other peer to peer providers that are available within some SIPPS, though currently I'm not aware of them being available in any SIPPs with annual charges below £800 a year aimed at relatively adventurous investors who have larger than usual amounts of money to invest, likely at least a hundred thousand Pounds, more likely two or more times that.

The performance of investments within a SIPP is not covered by the FSCS, with the narrow exception of some deposit-based investments that are not very commonly available. The FSCS protection is largely for fraud or bad advice where the adviser goes bust after receiving too many bad advice claims.

What is being pitched to you just doesn't deliver enough value to be worth dealing with.