Getting funds out of employers AE scheme

MoneySavingUser

My employer has an AE scheme with Scottish Widows (GPPP) with very little investment choice. There are five options with a fee of 0.75%.

I'd like to put my contributions into a SIPP for a) more investment choice b) Lower fees.

As far as I am aware, the provider doesn't allow partial transfer outs. I have been wondering if I could do something like the following:

1) Opt out
2) Submit a transfer request
3) Opt back in and then carry on contributing

I think some providers will give you a new plan number when you opt back in so it is totally separate to the first lot of contributions.

I know I'll need to check with SW if this works with them however:

a) are there any other issues I need to think about here?
b) Has any one done something like this (with any provider)?

I have a statutory right to opt out and then opt back in - though I think the employer only has to allow me to opt back in once every 12 months so I could only do this once a year.

If the provider does not allocate a new plan number and just keeps the same one I might not be able to opt back in until the transfer has happened as then I'd be doing a partial transfer again.

ischofie1

I'm thinking you can but not 100% sure.
If you can do 1 & 2 then you must be able to do 3.
They are legally obliged to ask if you want to join the scheme once per year if you're not in it.
You could transfer money out just before the anniversary then tell them....yes please I'll join again when they ask.

It may p*ss them off a bit but if it suits you!!!

Sure others will be along to correct me if I'm wrong.

dunstonh

I'd like to put my contributions into a SIPP for a) more investment choice b) Lower fees.

The difference in charges will probably be small and time out of market likely to more damaging.

Why not just keep the AE scheme to maximum employer benefit level and then put any extra in your SIPP?

MoneySavingUser

dunstonh wrote: »

Why not just keep the AE scheme to maximum employer benefit level and then put any extra in your SIPP?

Because I can't use salary sacrifice to make contributions into the SIPP.

ex-pat_scot

I'm in the same position - I have my legacy pension schemes transferred into a SIPP, but my active pension is a Scottish Widows GPPP.
Like you, I would prefer the flexibility of transfer out to my SIPP, whilst continuing my sal sac contributions into the open scheme.


I / we could contribute into SW up to the max contribution level, but
1. I'd lose ees NI (OK only 2% as all my contributions are at higher rate)
2. I'm in that nasty Personal Allowance clawback window, where I believe I would not recover the 20% that I lose through the loss of PA, if I made pension contributions out of my net pay
3. I'd have to keep notifying HMRC of the contributions in order to receive the higher rate relief on any net pay contributions, whereas it's automatic under sal sac.

EdSwippet

ex-pat_scot wrote: »

2. I'm in that nasty Personal Allowance clawback window, where I believe I would not recover the 20% that I lose through the loss of PA, if I made pension contributions out of my net pay

You would recover it. At the end of the year your enter any pension contributions not made via salary sacrifice into your HMRC self-assessment tax return, and it gets balanced out that way.

ex-pat_scot wrote: »

3. I'd have to keep notifying HMRC of the contributions in order to receive the higher rate relief on any net pay contributions, whereas it's automatic under sal sac.

Only once a year, via self-assessment. See 2 above.

bowlhead99

I also have the SW GPP getting me ongoing contributions from employer (and allowing the 2% NI saving from sal sac) while running a SIPP elsewhere. And it would be nice to move the existing SW GPP money into the SIPP but carry on getting new SW GPP money.

But the optout/transferout/optinagain seems a non-starter to me:

- If I say I want to leave the scheme then I will not get my free employer money that month which is worth hundreds of pounds. In an ideal world I could get my SIPP provider to then quickly send over the transfer forms, have SW liquidate the assets and transfer the money to the SIPP and close the pension, and then tell my employer that actually I'd like to opt in to the company pension again please, before I miss a second month of employer contribution, but I wouldn't count on all those stars aligning in a relatively short window of time.

- also as Dunstonh says, converting SW funds into investible cash at the SIPP provider and then investing it, involves being out of the market for most of the length of the transfer. FTSE100 and S&P500 each lost 3% in a couple of business days before recovering today/yesterday ; so who knows what could happen in a week or few out of the market.

So, I'm just letting the SW funds accumulate while doing some smaller level of personal contributions into the SIPP. The employer money is not a 'match' but just a flat contribution, so I could put all of my personal money in the SIPP instead - but the 2% NI saving on my own contributions to SW is a nice boost which 'pays' for the lack of flexibility in that scheme. Fortunately I have a better version of the SW GPP than OP, with a standard charge of 0.65% and a lot more than 5 funds to choose from (which includes various SW-label versions of external manager funds, although the fee premium for them is unclear).

As Ed mentioned above, the tax reclaim process on your own contributions to a SIPP if you're a higher rate taxpayer (even awkward 60% rate like ex-pat) is simple:

If you put £1000 in a SIPP when you're in that personal allowance clawback range, you are on an effective 60% marginal rate so the contribution should only cost you £400. So, in March, put in £800 to the SIPP. Provider claims back the tax to make it £1000. You tell HMRC you made £800 of contributions out of your taxed salary in the tax year, and within a couple of weeks HMRC sends you a cheque or bank transfer for £400 to get you to the right place, net.

You can tell them you'll be doing that every year (so they can adjust your tax code for 2017/8 and give you slightly better net pay via PAYE and not need to send you another £400 cheque the next year), or tell them it was a one off and you'd rather not have your tax code adjusted.

You can tell HMRC how much you're contributing to private pensions via a simple letter, but as an aside, falling into that personal allowance clawback window by earning £100k+ is usually one of the triggers for HMRC telling you that they want an annual self-assessment tax return from you.

I used to begrudge doing one as I don't have complicated tax affairs, but actually it's a pretty quick online process and it's a good reminder to claim all the relief you're owed for pension/vct contributions, charitable donations, and pay any tax on savings interest if you're over the allowance. The longest part of it is faffing around trying to remember/ reset your password that you only use once a year.

greenglide

The longest part of it is faffing around trying to remember/ reset your password that you only use once a year.

For which password safes are brilliant - I use keepass (free download from https://www.keepass.info ) there are many more.

MoneySavingUser

bowlhead99 wrote: »

But the optout/transferout/optinagain seems a non-starter to me:

- If I say I want to leave the scheme then I will not get my free employer money that month which is worth hundreds of pounds. In an ideal world I could get my SIPP provider to then quickly send over the transfer forms, have SW liquidate the assets and transfer the money to the SIPP and close the pension, and then tell my employer that actually I'd like to opt in to the company pension again please, before I miss a second month of employer contribution, but I wouldn't count on all those stars aligning in a relatively short window of time.

Thanks bowlhead - great post.

It seems like whilst this is a good idea in theory - in practice it will likely not be so easy as I thought!

MoneySavingUser

I asked SW the following questions:

- Can I transfer out my funds and keep my account open?
- Or can I only transfer out if I close my account?
- If I close my account can my employer pay into a new policy number?
- If I have to close my account am I automatically opted out?

They didn't respond to the questions directly but did send me a letter with:

- A transfer quote
- A discharge form

The discharge forms says (paraphrased):

Section B - total transfer, while contributions continue we cannot process your request, please ask your employer to confirm with us the date of your final contribution

Section C - partial transfer request - enter an amount or choose the maximum (leaves a nominal amount of £2 in the policy)

No restriction listed in section C about contributions continuing so seems it is fine to tv out the amount paid so far and carry on contributing.

I'm probably not going to do it for the reasons listed in previous posts but I am curious now!

https://www.fidelity.co.uk/investor/pensions/managing-sipp/before-transfer.page says:

The following pensions can be transferred as long as you have received financial advice and a recommendation to transfer from Fidelity's Retirement Service or your own adviser.

• Any type of defined benefit schemes (for example final salary schemes)
• Additional Voluntary Schemes (AVC) linked to defined benefit schemes
• Employer-sponsored schemes to which your employer still contributes where transfer would result in termination of membership or a change of contribution

Though then the transfer pdf only says "Employer sponsored schemes where your employer and/or you
continue to make contributions" so it seems some schemes will need you to get financial advice before doing this.

neilvw

MoneySavingUser wrote: »

Though then the transfer pdf only says "Employer sponsored schemes where your employer and/or you
continue to make contributions" so it seems some schemes will need you to get financial advice before doing this.

The transfer factsheet?
https://www.fidelity.co.uk/static/pdf/personal/pensions/sipp/fidelitysipp-transfer-factsheet.pdf

Pension accounts that may be transferred to the
Fidelity SIPP
Some schemes contain guarantees deemed as ‘safeguarded
benefits’ or provide benefits which will be lost on transfer. We
may at our discretion, accept transfers from:
■ Any type of defined benefit scheme – examples include, final
salary schemes, career average schemes, hybrid schemes,
some section 32 buy out plans and schemes that contain
Guaranteed Minimum Pensions (GMP)
■ Additional Voluntary Contribution schemes (AVC) linked to
defined benefit schemes
■ Employer sponsored schemes where your employer and/or you
continue to make contributions
Provided at the point the minimum legal and regulatory
requirements are met and subject to any other terms as we may
prescribe. If you are planning to transfer one of these schemes, full
analysis and advice will be required to show that it is in your best
interests. Without this, the transfer cannot proceed.
If you are unsure about the type of scheme you currently hold and
what benefits are available to you, contact the provider of the
scheme. We believe that it is essential that you receive financial
advice in order to make an informed decision.

Fidelity are really talking here about full transfers, saying that if a transfer forced a stop to such contributions, then they would need an adviser's report explaining why it's in your best interests. But it appears that you can partially transfer out of your Scottish Widows AE scheme, with contributions continuing.

You could ask Fidelity for this to be clarified - best to get it in writing.

If you did go ahead, you might want to do a partial transfer every 1-3 years, to save on hassle.

The point about time out of the market is a good one, but of course there's a 50% chance (in the very long run!) that you would gain from market movement rather than lose, for each transfer exercise.