newbie SIPP questions

dunstonh

Not sure what you make of that pic though?

It says it is treated as part of "their" estate.   What that means is that on first death (i.e. the original pension holder), the money is paid to the beneficiary but is not part of the estate of the pension holder.   However, when the beneficiary dies, that money will be in their estate as its no longer in the pension (unless they have spent it or done something with it to take it out of their estate).  Its often referred to as second death when looking at estate planning.  The second death is frequently where issues arise with IHT.

If the money is left in the pension wrapper for the successors it never forms part of anyone estate.  And it never gets checked again for LTA either.  Providing no successor spends all the money, it can be passed down forevermore with only income tax paid on the withdrawals.   

It also detailed the RIY, which was a new term on me! - And reckons the SW RIY is 0.46. I'm not sure how useful it is as I'm not sure how I could generate an RIY for a SIPP based on a specific basket of funds, so it may be better to look into other charges from SW for comparison. 

RIY was a popular method of comparing charges. It still is but mainly for legacy reasons.  Modern investments are normally clean with charging and only have annual charges.  So, you can tot up the annual costs very easily.  Old fashioned investments had bid/offer spreads, initial charges, transfer charges, loyalty bonuses, capital and accumulation units and so on.  So, you needed to measure the impact of all the charges over the term the investment/pension was likely to be held.   And that is what RIY - reduction in yield - is.   it is the impact of ALL charges over a period at an assumed growth rate. i.e. your annual return will be lower by x.x% due to charges.

A stakeholder pension with 1% AMC would have an RIY of 1.1%. Stakeholders are mono charged, so nice and easy.   Your SW pension with its RIY of 0.46% probably means an equivalent annual charge of 0.4%.

zagfles

ChilliBob said:

Thanks @dunstonh
I've actually found a pic I was sent. 
It also detailed the RIY, which was a new term on me! - And reckons the SW RIY is 0.46. I'm not sure how useful it is as I'm not sure how I could generate an RIY for a SIPP based on a specific basket of funds, so it may be better to look into other charges from SW for comparison. 

Not sure what you make of that pic though?

It's not saying that the pension would form part of your estate, it's saying that the pension would be paid as a cash lump sum to your beneficiaries, and then would form part of their estate if they were to die.

At 38, are you really worried about the potential IHT liability of your beneficiaries should you die and then your beneficiaries die? Unless you and your beneficiaries have some reason to think you may not live long I can't see this being anywhere near the top of the list of criteria for choice of pension. Look at stuff like charges. Flexibility/drawdown you can worry about when you get close to the age when you can access the pot.

ChilliBob

Thank you both.. So if I understand this correctly (not doing so well in that area so far!)

SW: I pass, any age, goes to whoever I nominate, e.g. wife to be. Wife to be passes, goes to our Son. On the first hop, from me to wife to be, no IHT liability, hop from her to Son, likely to be. Critically for SW, nobody will be nominated, or if they are it'll be my folks (81 and 78) as I had no partner or son when taking it out a while ago.

SIPP: As above except the last hop is also outside the estate
I feel I've stated what *I want* the case to be, but perhaps not what reality is!

I'm bound to move to a SIPP anyway to give me greater choice in investments and to change the type of investments some what, but if it gives me the above too then great.

@dunstonh So you think SW is perhaps 0.4%. So if the SIPP was with say Fidelity, you can practically write off the £45 cost to hold, perhaps add £50 for 5 investments or something.. then it all comes down to the OCF of the funds chosen right? - So be that super cheap 0.1% ETFs or more expensive ITs at >1% with per fee or something, to get the range.

Albermarle

So if the SIPP was with say Fidelity, you can practically write off the £45 cost to hold, perhaps add £50 for 5 investments or something.. then it all comes down to the OCF of the funds chosen right? - So be that super cheap 0.1% ETFs or more expensive ITs at >1% with per fee or something, to get the range.

That is correct , although many Investment Trusts have OCF < 1 %

ChilliBob

Yeah for sure, but I guess I was thinking worst case (well, I suppose that's probably PE!).

Is my understanding of SW vs SIPP as above correct? 

dunstonh

@dunstonh So you think SW is perhaps 0.4%. So if the SIPP was with say Fidelity, you can practically write off the £45 cost to hold, perhaps add £50 for 5 investments or something.. then it all comes down to the OCF of the funds chosen right? - So be that super cheap 0.1% ETFs or more expensive ITs at >1% with per fee or something, to get the range.

yes, you will compare the SW @ 0.4% p.a. vs the alternative with platform charge + OCF.    

SW: I pass, any age, goes to whoever I nominate, e.g. wife to be. Wife to be passes, goes to our Son. On the first hop, from me to wife to be, no IHT liability, hop from her to Son, likely to be. Critically for SW, nobody will be nominated, or if they are it'll be my folks (81 and 78) as I had no partner or son when taking it out a while ago.

The nomination can be updated whenever you like. So, no reason to be out of date.  That goes for any provider you have.

ChilliBob

It's out of date because a pension was the last thing on my mind over the last say 10 years - paying into it the max I could to get employer to match and left it well alone whilst getting on with a tonne of other stuff. Revisiting now as my personal situation has taken on somewhat of a paradigm shift really.