SIPP vs occupational pension?

Geranium44

I decided to consolidate a number of past employer money-purchase pension funds into my current employer’s scheme in order to make a 25% tax free withdrawal on reaching 55. I had completed 3 of 4 funds when my current scheme administrator advised they had mistakenly informed me I could not have withdrawn 25% on reaching 55 despite saying I could. 

I’ve received an apology from my current scheme saying they missed four separate opportunities to correctly inform me of what was possible. 

I’m clearly very unhappy with this and the current scheme administrator has suggested transferring my consolidated pot into a SIPP and then making the 25% withdrawal. 

My belief is a SIPP is not as good as an occupational scheme and my questions are 1. Am I correct I believing moving to a SIPP is poor advice and 
2. What are the main drawback of doing this?
many thanks. 

AlanP_2

Is it an occupational Defined Contribution / Money Purchase or Defined Benefit scheme?


I am going to assume DC for now.

How are you comparing a SIPP and the occupational scheme to reach that conclusion - charges, fund choices, ease of admin, functionality provided?

If the occ scheme doesn't offer what you want then how can it be better than a SIPP that can?

Linton

There are plusses and minuses for SIPPs and employer schemes.  For example

 - SIPPs generally provide a far greater range of investments, employer schemes can be very restricted.
 - employer schemes could be cheaper than a SIPP as the employer may subsidise the adminiistration.  On the other hand such subsidies may not apply after you leave the company.
 - old employer schemes may have useful guarantees which would be lost on transfer.
 - old employer schemes may well not provide for drawdown so you would probably have to transfer out at some stage anyway.
 - employer schemes can be less less convenient to manage than a SIPP, especially if you have several.
 
You need to look at the details before deciding whether a transfer is worthwhile.

dunstonh

I had completed 3 of 4 funds when my current scheme administrator advised they had mistakenly informed me I could not have withdrawn 25% on reaching 55 despite saying I could. 

it is quite common for legacy schemes and budget schemes not to offer drawdown functionality and drawing the 25% tax-free cash without an income is drawdown.

My belief is a SIPP is not as good as an occupational scheme and my questions are 1.

What makes you think that?  There is no generic reason why an occupational scheme is better than any other type of pension (SIPP, PPP, SHP, Master Trust etc).  Each is measured on its own merits.  Some SIPPs are much better than the occupational schemes of some employers.  Some occupational schemes are better than some SIPPs.

Am I correct I believing moving to a SIPP is poor advice and 

It is not advice.   Only advisers can give advice.  A pension administrator will not be giving advice.   For example, whilst a stakeholder pension wont likely be suitable (most dont offer drawdown functionality), your objectives can be achieved by SIPPs, PPPs and some master trust schemes.   Not just by SIPPs.

2. What are the main drawback of doing this?

It depends on the SIPP you buy.  SIPPs are not just one thing.  They are like any retail product and you get good value ones and bad value ones.

However, it the simplest level, you have an occupational pension that doesn't do what you want. So, that cannot be better than a SIPP that does do what you want.

Geranium44

AlanP_2 said:

Is it an occupational Defined Contribution / Money Purchase or Defined Benefit scheme?


I am going to assume DC for now.

How are you comparing a SIPP and the occupational scheme to reach that conclusion - charges, fund choices, ease of admin, functionality provided?

If the occ scheme doesn't offer what you want then how can it be better than a SIPP that can?

Thanks Alan. Thought it was clear in my OP opening sentence… money purchase pension. You’re repeating the same question I’m seeking an answer to. Generally speaking, is leaving an occupational pension scheme to a SIPP ill advised? If your answer is ‘it depends’ that’s fine. I’m unclear on the details of the merits of the different options. 

gm0

This is (unfortunately) a slightly complex topic.

First is the government age restriction which rises gently in coming years 55 - 57+ etc depending upon your age. So your age matters but it is hard to see how they tripped over that but who knows

Second is the terms of the scheme which can in some circumstances be beneficial (opportunity to take early is "preserved" because it was in place before the government put the changes in).  Some people even have >25% TFC on a similar rule.

Third are other scheme specific terms about earliest retirement in your scheme which are mysteriously higher than 55 at present I have not experienced this personally mine just implemented the governments minimum age and that was that.  It could exist but it would be odd for a DC scheme in my view as I can't see the point of the rule from their perspective or yours.  Although if they put in an SP age -10 rule which was where the government signalled it was headed - then 67/57 could make sense.

You obviously *can* transfer to a SIPP as you can always transfer out the whole of a DC pot as you have done for 3 already.

The difficulty here is understanding *why* they have now come back to you with this.  If it is item 1 - general early retirement age rules impacting your planner early retirement date then moving to a SIPP is quite likely not going to help you.  Nothing bar the money from the scheme goes to the SIPP so the standard rules for your age at retirement apply.  Google. 

If it is rule 3 then the exit transfer will let you escape it to an environment where the standard rules do apply.

Consider and check - the employer scheme may or may not support drawdown currently.  Not all do.  This matters in terms of what happens next.  If it does not have drawdown and they are not adding it before you need it and you plan to use it after taking tax free cash then a transfer elsewhere would be likely anyway.  And even if they add drawdown it will very likely be implemented by offering you a (possibly subsidised) product which you transfer into - and this will be good/bad/indifferent vs what you can find on your own.

What else will change if you move to a SIPP

- Fund range - likely better - much better.  Matters or not based on what you want to invest in.

- Cost - could be worse OR could be better - depends on the current scheme admin and fund costs for desired portfolio.  My occupational is cheaper than a SIPP for global passive.  They exist.

- Access to drawdown - SIPP has it.  Your scheme may or may not - check

- Insured funds and protection - Default - 85k for SIPP, 100% value for existing.  Fund custody protections largely the same for both.  A small (if unwelcome) difference in reality.


Understanding which rule is blocking you at age and planned access date is the first thing.  The move will then either be obvious or make no difference.

jamesd

Geranium44 said:

Generally speaking, is leaving an occupational pension scheme to a SIPP ill advised?

Now, that's a different question than the one you originally asked so I'm going to answer two questions instead of just that one.

1. Generally speaking, switching from an occupational DC scheme to a non-occupational scheme is not ill advised and it depends on factors like costs, investment choice and features offered. This is the answer to your original question and the answer you probably seek.

2. Generally speaking, leaving - meaning ceasing to be an active contributing member of - an occupational pension is a bad idea and no exceptions come to my mind for DC. This isn't really what you were trying to ask.

The approach suggested by the scheme administrator is entirely sensible and you should act as suggested to achieve your objective.

However, it's worth noting that some schemes prohibit or restrict switches out by active members and you should seek assurance from the administrator that yours actually allows this.

Geranium44

gm0 said:

This is (unfortunately) a slightly complex topic.

First is the government age restriction which rises gently in coming years 55 - 57+ etc depending upon your age. So your age matters but it is hard to see how they tripped over that but who knows

Second is the terms of the scheme which can in some circumstances be beneficial (opportunity to take early is "preserved" because it was in place before the government put the changes in).  Some people even have >25% TFC on a similar rule.

Third are other scheme specific terms about earliest retirement in your scheme which are mysteriously higher than 55 at present I have not experienced this personally mine just implemented the governments minimum age and that was that.  It could exist but it would be odd for a DC scheme in my view as I can't see the point of the rule from their perspective or yours.  Although if they put in an SP age -10 rule which was where the government signalled it was headed - then 67/57 could make sense.

You obviously *can* transfer to a SIPP as you can always transfer out the whole of a DC pot as you have done for 3 already.

The difficulty here is understanding *why* they have now come back to you with this.  If it is item 1 - general early retirement age rules impacting your planner early retirement date then moving to a SIPP is quite likely not going to help you.  Nothing bar the money from the scheme goes to the SIPP so the standard rules for your age at retirement apply.  Google. 

If it is rule 3 then the exit transfer will let you escape it to an environment where the standard rules do apply.

Consider and check - the employer scheme may or may not support drawdown currently.  Not all do.  This matters in terms of what happens next.  If it does not have drawdown and they are not adding it before you need it and you plan to use it after taking tax free cash then a transfer elsewhere would be likely anyway.  And even if they add drawdown it will very likely be implemented by offering you a (possibly subsidised) product which you transfer into - and this will be good/bad/indifferent vs what you can find on your own.

What else will change if you move to a SIPP

- Fund range - likely better - much better.  Matters or not based on what you want to invest in.

- Cost - could be worse OR could be better - depends on the current scheme admin and fund costs for desired portfolio.  My occupational is cheaper than a SIPP for global passive.  They exist.

- Access to drawdown - SIPP has it.  Your scheme may or may not - check

- Insured funds and protection - Default - 85k for SIPP, 100% value for existing.  Fund custody protections largely the same for both.  A small (if unwelcome) difference in reality.


Understanding which rule is blocking you at age and planned access date is the first thing.  The move will then either be obvious or make no difference.

It’s very much appreciated the trouble you’ve taken to respond in this detail. You’ve highlighted risk in so far as costs could be higher or lower on moving to a SIPP and simply wishing to drawdown 25% was I understood risk free. Why would I risk moving to a SIPP of risk existed? That’s my choice and I fully accept none of what you say is advice. 

I can only wonder why the administrator failed on four separate phone calls and follow up emails to alert me to the scheme disallowing the TFC on reaching 55. The regulator is currently investigating. I went to considerable trouble to consolidate each of four MONEY PURCHASE pensions from four previous employers into a current employer’s scheme, none of which I’d have done if I’d correctly been told this wasn’t allowed. Odd it took until this consolidation had taken place before I was informed. 

Thanks again. 

Geranium44

jamesd said:

Geranium44 said:

Generally speaking, is leaving an occupational pension scheme to a SIPP ill advised?

Now, that's a different question than the one you originally asked so I'm going to answer two questions instead of just that one.

1. Generally speaking, switching from an occupational DC scheme to a non-occupational scheme is not ill advised and it depends on factors like costs, investment choice and features offered. This is the answer to your original question and the answer you probably seek.

2. Generally speaking, leaving - meaning ceasing to be an active contributing member of - an occupational pension is a bad idea and no exceptions come to my mind for DC. This isn't this isn't really what you were trying to ask.

The approach suggested by the scheme administrator is entirely sensible and you should act as suggested to achieve your objective.

However, it's worth noting that some schemes prohibit or restrict switches out by active members and you should seek assurance from the administrator that yours actually allows this.

Thanks James. These were four “previous employer” schemes and as such, I wasn’t actively contributing. Sorry that didn’t come across clearly. Apologies if this is stating the obvious but x 4 previous pensions into current employer scheme THEN transfer out from current scheme to a SIPP (if I so wished ). 

In my book that’s a lot of pension transfers to facility 25% TFC again, none of which I’d have attempted if I’d not been given misleading information. 

dunstonh

 You’ve highlighted risk in so far as costs could be higher or lower on moving to a SIPP and simply wishing to drawdown 25% was I understood risk free.

Drawing the 25% at 55 is not risk-free.  a) it reduces your retirement fund by a quarter.  b) it could create increased taxation for the remainder of your life.

Why would I risk moving to a SIPP of risk existed?

The same question could be asked about taking 25% of your retirement fund so early?   It's a risk but risks can be mitigated or reduced or have justifiable reasons for taking that risk that really means it is not much of a risk after all.  Or it could be a mistake that you are not aware you are doing.

I can only wonder why the administrator failed on four separate phone calls and follow up emails to alert me to the scheme disallowing the TFC on reaching 55.

They would not normally contact you to say they dont offer some functionality unless you specifically ask them.  Their generic documentation would normally state terms without the need to draw your attention to it specifically.      
So, it is interesting to wonder what prompted them to say that.   Maybe the person you spoke to originally didn't understand why you were doing it.  They may not even know what drawdown was.   After all, front line clerical workers will often only know the basics and often only be limited to their own options and not those available elsewhere.

The regulator is currently investigating. 

Which I expect won't lead to anything as they cannot force a provider/administrator to give functionality that they do not offer.   The occupational scheme has told you the solution, move to a SIPP, and that wont cost you anything.   It is one of the options you would have had to select from if you had been given the right info to begin with.    So, you are not out of pocket or in a worse position other than time.  However, it only takes a few minutes work to key in a transfer request and with DC schemes its a matter of days to a week or two with most to get them transferred.   So, no big deal.

Geranium44

dunstonh said:

 You’ve highlighted risk in so far as costs could be higher or lower on moving to a SIPP and simply wishing to drawdown 25% was I understood risk free.

Drawing the 25% at 55 is not risk-free.  a) it reduces your retirement fund by a quarter.  b) it could create increased taxation for the remainder of your life.

Why would I risk moving to a SIPP of risk existed?

The same question could be asked about taking 25% of your retirement fund so early?   It's a risk but risks can be mitigated or reduced or have justifiable reasons for taking that risk that really means it is not much of a risk after all.  Or it could be a mistake that you are not aware you are doing.

I can only wonder why the administrator failed on four separate phone calls and follow up emails to alert me to the scheme disallowing the TFC on reaching 55.

They would not normally contact you to say they dont offer some functionality unless you specifically ask them.  Their generic documentation would normally state terms without the need to draw your attention to it specifically.      
So, it is interesting to wonder what prompted them to say that.   Maybe the person you spoke to originally didn't understand why you were doing it.  They may not even know what drawdown was.   After all, front line clerical workers will often only know the basics and often only be limited to their own options and not those available elsewhere.

The regulator is currently investigating. 

Which I expect won't lead to anything as they cannot force a provider/administrator to give functionality that they do not offer.   The occupational scheme has told you the solution, move to a SIPP, and that wont cost you anything.   It is one of the options you would have had to select from if you had been given the right info to begin with.    So, you are not out of pocket or in a worse position other than time.  However, it only takes a few minutes work to key in a transfer request and with DC schemes its a matter of days to a week or two with most to get them transferred.   So, no big deal.

Thanks for your helpful answers … not sure why you think an administrator failing to give information on four separate occasions by four different call handlers/ email responders is no big deal. I agree administrators do not give advice but financial decisions made on information that is confirmed by f/I email is poor. Sounds like negligence to me. Regulator has acknowledged a case to answer but I agree, unlikely to result in sanction. 

Thanks again really appreciate the detailed advice.