Talk to me about SIPP please!

cgray25

I have my own business, have been self employed forever and had never made pension contributions until 3 years ago. Or so I thought. I'm about to turn 40 and  found out last week that my accountants, who were in charge of the company pension contributions, hadn't been including me in the figures or opt in.

Issues there aside, they advised I look into a SIPP instead. A friend of mine recommended a management company he's used, however, he's quite wealthy and has an elaborate set up involving his kids, and a commercial property in a trust for them. I have no such luck.

Outside of needing to set up a trust, is there any need (or benefit) to have an externally managed SIPP? I was looking at ii and selecting a number of ETFs, diversified across sector and risk.

I recently started a 2nd side-line business. As I'm nearly at the lower-mid-tier tax threshold, I thought it would make sense to funnel any additional income from the 2nd business into my SIPP (which I understand will be tax free, up to 40k. I don't need to worry about hitting that!). 
Would appreciate any thoughts/input/advice.

Dazed_and_C0nfused

You start by saying you have been "self employed forever".

Is this actually true or are you really a director of a limited company?

It is quite important as far as pension contributions go.

NedS

First, a few questions.

Are you a self employed sole trader, or are you a director of a (your) company?

Edit: same question as above

dunstonh

I have my own business, have been self employed forever and had never made pension contributions until 3 years ago. Or so I thought. I'm about to turn 40 and  found out last week that my accountants, who were in charge of the company pension contributions, hadn't been including me in the figures or opt in.

Auto-enrolment does not apply to the self-employed (although if they employ people, they may need to run a scheme for them).

Are you really self-employed or are you a limited company director?

Outside of needing to set up a trust, is there any need (or benefit) to have an externally managed SIPP? I was looking at ii and selecting a number of ETFs, diversified across sector and risk.

You don't need to set up a trust with the vast majority of pensions.   You say selecting a number of ETFs.   One assumes you know what investment strategy and structure you are going to follow and your selection will fit that model.  or did you mean you would just pick random allocations and hope for the best?  

 

I recently started a 2nd side-line business. As I'm nearly at the lower-mid-tier tax threshold, I thought it would make sense to funnel any additional income from the 2nd business into my SIPP (which I understand will be tax free, up to 40k. I don't need to worry about hitting that!). 

If you are self-employed, the contributions do not come from the business.    If you are not self employed but a director then they can.

Steve182

Speaking purely from my own experience and not trying to give advice....

There is no need to have your SIPP externally managed if you are have the desire, knowledge and confidence and to make a decent job of it yourself.

I chose to transfer my company pension pot it a SIPP because I was frustrated with the lack of investment choice it offered. After doing a bit of research I could see that other products existed that offered far superior historic returns to my own pension, while being only marginally riskier. I had no previous experience, but I do understand my own financial goals and my fairly high risk appetite better than anyone else. 

It's really paid off for me. My main regret is that I did not do it 10 years earlier. I'm now quite hands on with mainly direct shareholdings. It's not suitable for everyone though.

If you do take the plunge and decide to manage it yourself I would not confine your investment horizons to ETF's though. Some of the UK's most popular (and so called "riskier") investment trusts and funds, such as Scottish mortgage and Fundsmith have continued to outperform any pension funds that I'm aware of, especially through covid. 

I use both AJ Bell and II.  I'm happy with them both. AJ Bell fees are based on pot value, using a sliding scale, whereas II charge a fixed fee regardless of pot value. Therefore AJ Bell  should be cheaper for pot values below 6 digits.  

cgray25

Thanks for the replies, and apologies for the lack of specificity, I was self employed prior to 6 years ago, now a company director.

To answer dunstonh: I wasn't going to simply gamble my future on stock-picking amazon, apple and tesla, no. As mentioned, I would take a strategic approach, do my research and diversify my investments according to industry and risk, both ETFs and funds.

Steve, thanks for the detailed reply. I suppose my only reservation, or need for external input, was with regards to trust arrangements. From the sounds of it I could always arrange that at a later date and, indeed, contribute to a trust separately.

Albermarle

Steve, thanks for the detailed reply. I suppose my only reservation, or need for external input, was with regards to trust arrangements. From the sounds of it I could always arrange that at a later date and, indeed, contribute to a trust separately.

Not sure where this trust idea comes from , apart from the fact your much wealthier friend operates one? What is it you are trying to achieve ?

Are you aware that all pensions/SIPP's stay outside your estate anyway as they are held in trust anyway by the trustees of the scheme .

So if you are thinking who might get any pension pot left when you die , then you fill in the Beneficiaries form that all pension providers send you . You do not include pensions in your will as they are technically not yours.

Brynsam

cgray25 said:

I have my own business, have been self employed forever and had never made pension contributions until 3 years ago. Or so I thought. I'm about to turn 40 and  found out last week that my accountants, who were in charge of the company pension contributions, hadn't been including me in the figures or opt in.

cgray25 said:

Thanks for the replies, and apologies for the lack of specificity, I was self employed prior to 6 years ago, now a company director.

You're a company director and you didn't notice when you signed off your company accounts where the money had (or more accurately hadn't!) been going? Or that you hadn't been getting any correspondence from your pension provider? If your company has employees, are you sure they are being correctly treated? Now might be no bad time to make quite sure.

I recently started a 2nd side-line business. As I'm nearly at the lower-mid-tier tax threshold, I thought it would make sense to funnel any additional income from the 2nd business into my SIPP (which I understand will be tax free, up to 40k. I don't need to worry about hitting that!). 
Would appreciate any thoughts/input/advice.

If your second business is on the basis of self employment (rather than a limited company), consider making the contributions from your main business. This could mean you can make higher contributions (and get corporation tax relief as a trading expense) if you want to make maximum contributions of £40K but don't have the earned income to support that level of contribution as a personal contribution.

dunstonh

Thanks for the replies, and apologies for the lack of specificity, I was self employed prior to 6 years ago, now a company director.

As you are not self employed but a company director this means you do not have to have an auto-enrolment scheme unless there are qualifying employees.    If you have employees, then the directors are automatically opted in unless they choose to opt out (many directors do choose to opt out as they prefer to uilise better pensions than auto-enrolment schemes).

 I wasn't going to simply gamble my future on stock-picking amazon, apple and tesla, no. As mentioned, I would take a strategic approach, do my research and diversify my investments according to industry and risk, both ETFs and funds.

It is just that ETFs are a knowledge notch above unit trust/OEICSs and can have higher risks than their equivalent UT/OEICs.  A risk that is mitigated by knowledge and understanding.    As you are building a portfolio of single sector funds, this would mean choosing weightings to go into each area and adjusting throughout the economic cycle and rebalancing.  So, its a bit more work.  Its not a case of picking 10 funds and putting 10% in each.   If you are going down that route then you would be better with a multi-asset fund.   
Knowledge is important when you move away from the mainstream.   I think it is fair to at least question your knowledge. After all, you thought you had a pension but didnt.   If you feel your knowledge is fine, then fair enough.

Steve, thanks for the detailed reply. I suppose my only reservation, or need for external input, was with regards to trust arrangements. From the sounds of it I could always arrange that at a later date and, indeed, contribute to a trust separately.

Why do you think you need a niche pension option that requires a personalised trust to be set up?

cgray25

Albermarle - the trust idea came from the fact that it will be a tax efficient way to own and maintain commercial property, as well as a mechanism to pass on my estate.

Brynsam - at the time of initial setup I was enrolled but on subsequent years I was not (the other director remained enrolled). As calculations were still being made as if I was enrolled and, due to calculations being lumped together with a few other employees, I hadn't noticed the discrepancy. I still suspect my accountants dropped the ball.

The other company is also Ltd, so I'd make contributions from here.

Dunston - as noted above, there are employees and I never opted out.
Regarding managing my SIPP, I do expect that it's some work and my knowledge isn't currently sufficient. However, I intend to keep learning, with the help of kind folks such as yourselves.

Marcon

Albermarle said:

Steve, thanks for the detailed reply. I suppose my only reservation, or need for external input, was with regards to trust arrangements. From the sounds of it I could always arrange that at a later date and, indeed, contribute to a trust separately.

Are you aware that all pensions/SIPP's stay outside your estate anyway as they are held in trust anyway by the trustees of the scheme .

So if you are thinking who might get any pension pot left when you die , then you fill in the Beneficiaries form that all pension providers send you . You do not include pensions in your will as they are technically not yours.

You can ask for your SIPP or other personal pension funds to be paid to your estate. Under current legislation, they remain free of IHT if they are paid at the discretion of the SIPP/personal pension trustee/manager. If that's your preferred route, then you do need to include details in your will of who should receive what (with a fallback position just in case the law on IHT changes between the time you make your will and the time you are no longer around to change it!).