Transfer out to Freetrade SIPP - de-registration risk

granta

I'm in the process of transferring a SIPP to freetrade.

Before proceeding, the current provider has sent me an alert to say that "At present, Freetrade only offers a form of withdrawal called an “uncrystallised funds pension lump sum”." 

As a result, they are warning me:  "However, we thought it would be prudent and wanted to bring to your attention a recent communication from HMRC with regard to pension Scheme’s that do not offer customers the chance to take pension benefits through the Scheme and the potential action that HMRC could take against that Scheme Newsletter 152 — July 2023 - GOV.UK (www.gov.uk). "
The HMRC communication warms that they may seek to de-register pensions that do not offer the full range of withdrawal options in future.

In my situation, I am unbothered about withdrawal options as I will likely have transferred the funds to a different SIPP by retirement age (at least 10-15 years away).

So my question: is there anything else I should be wary of, such as de-registration risk (I don't understand the possible implications of this)?

incus432

Looks like a bit of a red flag to me. Why are you transferring to them?

granta

incus432 said:

Looks like a bit of a red flag to me. Why are you transferring to them?

I'd already opened an ISA with them and taken out an annual subscription so will save on fees. Plus they currently have a cashback promotion. 
What happens in the event of a de-registration? They have lots of SIPP customers so presumably we would be able to transfer out?

incus432

Don't know I'm afraid. I'd collect my cashback and transfer out to a more flexible provider when you can (after the annual sub expires?)

granta

incus432 said:

Don't know I'm afraid. I'd collect my cashback and transfer out to a more flexible provider when you can (after the annual sub expires?)

I plan to do that. I just need to know if am exposed to any extra risk in the next 12 months. I guess there is also a chance the freetrade expand their withdrawal options in response to HMRC requirements 

incus432

Are some serious financial penalties

"Following de-registration, the person who was the scheme administrator immediately before the scheme ceased to be registered becomes liable to the de-registration charge. The amount of the tax charge is broadly 40% of the value of the scheme assets held immediately before the scheme was de-registered."

granta

Financial penalties for freetrade though so hopefully they would do everything they could to avoid this!

QrizB

granta said:

Financial penalties for freetrade though so hopefully they would do everything they could to avoid this!

I'd expect them to warn you that it was imminent and encourage you to transfer out promptly.
Does anyone know if this has happpened to a scheme before, and (if so) how it was handled?

Albermarle

granta said:

incus432 said:

Don't know I'm afraid. I'd collect my cashback and transfer out to a more flexible provider when you can (after the annual sub expires?)

I plan to do that. I just need to know if am exposed to any extra risk in the next 12 months. I guess there is also a chance the freetrade expand their withdrawal options in response to HMRC requirements 

Probably increasing their charges at the same time.
They are a very low cost provider, which is presumably why they only have limited options currently. 

granta

QrizB said:

granta said:

Financial penalties for freetrade though so hopefully they would do everything they could to avoid this!

I'd expect them to warn you that it was imminent and encourage you to transfer out promptly.
Does anyone know if this has happpened to a scheme before, and (if so) how it was handled?

I was signposted to Money Helper's pensions service and have given them a call.

Obviously they don't provide advice on specific cases but they said they had not come across HMRC de-registration before and implied it was highly unusual. And also that as the scheme was FCA registered, any losses would potentially be covered (I am not sure if that is really the case). 

I'm now just curious to know whether there are other commonly available SIPPs that offer only a limited range of withdrawal options as presumably they are all at the same risk. It's not something I had ever considered before, mainly because when it comes to withdrawal time in 15 years, I will transfer it to whatever provider offers the best option then.

incus432

Look at Monevator's list of platforms. Freetrade is the only one listed I can see that has that restriction. 'No drawdown, £240 per UFPLS'  Eeek

https://monevator.com/compare-uk-cheapest-online-brokers/