Deferred SIPP

Liz_the_Whizz

We spoke to an IFA this am about what to do with my DH's Equitable Life pension.

This was only an initial meeting so not much detail as yet but the IFA thinks that transfer to a deferred SIPP could be a good option.

Couple of qs:

I had thought from earlier discussions on MSE that you could not transfer protected rights money into a SIPP, but the IFA said that you can with a deferred SIPP

And what are the key differences between a SIPP and a deferred SIPP?

In terms of charges, he said that he tends to operate on a sort of agreed commission basis, ie he does not automatically take what the provider offers by way of commission in case this happens to be the highest paying product. What he does instead is to calculate it in a more transparent way, then agree it with the client before getting the provider to pay at the agreed level.

Does this sound the best basis to use? He will do just pure fees or pure commission.

He reckoned it would be c 3% for the pension transfer. Does this come out of the pension pot my DH will transfer from Equitable Life?

Sorry if this sounds as if we didn't ask the right questions of the IFA, it's things we thought of afterwards.

The IFA has impressive pension quals (G60, K10, K20), so hopefully will know his stuff!

dunstonh

And what are the key differences between a SIPP and a deferred SIPP?

There really isnt an industry standard name for these yet and they are mostly working on marketing names. Hybrid SIPPs or fund supermarket pensions are what others are calling them.

The main difference is that they allow investment only into funds. You may get the 1000 or so unit trust/oeic/sicavs but you cannot use shares or ITs. Its a fund option only. That said, post A day, it is estimated that over 90% of SIPPs are only using funds anyway so for most people there is no problem there.

In terms of charges, he said that he tends to operate on a sort of agreed commission basis, ie he does not automatically take what the provider offers by way of commission in case this happens to be the highest paying product. What he does instead is to calculate it in a more transparent way, then agree it with the client before getting the provider to pay at the agreed level.

This is customer agreed remuneration. That will irritate Ed. She thinks I am the only IFA working on that basis

Does this sound the best basis to use? He will do just pure fees or pure commission.

Yes it is the best option and if the FSA proposals come in then it will be a requirement to do it this way. With SIPPs/fund supermarkets/hybrid/deferred etc the commission is explicit. So it is a fee. Having it paid out of the fund though is better because you get tax relief on it. i.e. a £1000 fee would be £1000 by cheque (plus VAT possibly depending on the service being bought). However paid out of the pension means it has had tax relief so at 22%, you are only paying £780. Plus there is no VAT.

CAR means that no provider bias will exist as the remuneration will be the same regardless of the provider you use. This can make providers with high commissions more attractive to use because the extra rebate can make the terms better for you.

He reckoned it would be c 3% for the pension transfer. Does this come out of the pension pot my DH will transfer from Equitable Life?

Its lower than the typical maximum but its higher than 1.8% which is the collectives average published by the FSA.

Sorry if this sounds as if we didn't ask the right questions of the IFA, it's things we thought of afterwards.

The IFA has impressive pension quals (G60, K10, K20), so hopefully will know his stuff!

He is working to CAR and has good qualifications. They are certainly positives. He isnt hiding from the remuneration and is being upfront about it. Its discounted, not as much as you could possibly get but I could buy my food cheaper in Aldi than I do in M&S but I prefer quality. You need to decide your views on that.

EdInvestor

There are big differences between a real SIPP and a deferred SIPP, but you can't use a real one if you have protected rights.if the pension has both PR and PR money in it, you can split it in two, opening a SIPP for the non PR money and a simple stakeholder for the PR money until it can go into the SIPP.


Ask him to show you the differences between a deferred SIPP and a personal pension* with a good choice of external funds.Check charges in particular.That's usually where the main difference lies.


*not a stakeholder

Liz_the_Whizz

Does a SIPP offer any advantages over a personal pension, other than choice of investment types?

Is there the same flexibility to take income drawdown and phased retirement with both products?

And do IFAs ever recommend Hargreaves Lansdown's SIPP?

EdInvestor

Liz_the_Whizz wrote: »

Does a SIPP offer any advantages over a personal pension, other than choice of investment types?
Is there the same flexibility to take income drawdown and phased retirement with both products?

Both can offer drawdown, but the lifecos have restrictive rules about size of fund, usually requiring a minimum of 100k. Lifeco charges are also usually much higher and they tend to require you to use an advisor.

There will be a very much larger range of investment choices in a SIPP.A conventional pension hardly offers any investment choice.

And do IFAs ever recommend Hargreaves Lansdown's SIPP?

Not normally as it's execution only.Same applies to Sippdeal, Alliance Trust SIPPS. IFAs are not authorised to advise on shares, gilts, investment trusts and possibly ETFs, all of which are low cost investment options very suitable for income drawdown. You get a very narrow and usually expensive focus with most IFAs, based on unit trusts and insured products.

Also the customer service at lifecos is diabolical by comparison with SIPPS, almost forcing you to incur the cost of using an advisor. Anyone who moves to a proper SIPP quickly finds this aspect somewhat of a "killer app" - you suddenly realise that your pension can actually be run like a normal financial product.:)

dunstonh

Does a SIPP offer any advantages over a personal pension, other than choice of investment types?

No. Life company charges can be higher but also lower or identical and an increasing number have no limits on the amount you can drawdown. The available funds are typically around the 1000 mark which is all the major unit trusts.

Is there the same flexibility to take income drawdown and phased retirement with both products?

Yes.

And do IFAs ever recommend Hargreaves Lansdown's SIPP?

No. HL are IFAs. Their product is fine but it isnt practical for other IFAs to use HL's own branded product. There are comparable products available to IFAs from providers that can be equally as good or better. Remember that HL's product is execution only and they do not rebate any trail commission on the SIPP. They keep it all for themselves.