Taking control of your pension fund

  • It’s a question many of us might ask ourselves. “If I want to take control of my pension fund, how do I go about doing it?”. If you haven’t yet asked yourself that question, have you thought long and hard about your pension options or are you simply happy to persist with your existing pension?

    The problem that many people are having is that their existing pension fund is underperforming and has been doing so for a while. According to research 14 of the 20 largest pension funds have been underperforming over the last 10 years . This could easily apply to you. If your pension fund is underperforming, it could be time for a change.

    So, what is the solution? This could lie with self-invested personal pensions.

    What is a self invested personal pension?

    A self invested personal pension or SIPP is a “do it yourself pension scheme” where you make all the decisions in relation to how and where your pension fund is invested.

    How does it work?

    Once you open a SIPP you have the complete freedom to decide exactly where your pension pot is invested. One of the big advantages is the range of SIPP pension investments, which with the top providers can be in the 1,000s — if you therefore choose your investments wisely there is the potential to make a lot of money.

    Will I be charged?

    When investing in a SIPP, it’s likely that you’ll encounter a number of different charges. For example with some SIPPs you’ll be required to pay a fee when you open the pension, annual charges and then a fee each time you buy or sell investments.

    At one time this list of charges made SIPPs a pension scheme reserved for the super rich. However, there are now many low cost alternatives on the market which still offer a wide range of potential investments, but which don’t charge fees for establishing the pension or any annual charges — you’ll also secure a low charge the more deals you do. This low cost alternative has opened up the market to make SIPPs accessible to the majority of people in the UK.

    Where can I invest?

    The following are examples of the kind of options for investment provided by leading SIPP providers:

    • Stocks and shares
    • Unit trusts and OEICs
    • Government bonds
    • Corporate bonds
    • Permanent interest bearing shares
    • Warrants
    • Investment trusts
    • Exchange traded funds and commodities

    What tax will I pay?

    The tax relief for a SIPP follows the same lines as tax benefits for any kind of personal pension, i.e. any contribution you make into the pension will be done so “net” of basic rate tax, which basically means the tax man will give you 20%. Higher rate tax payers are able to claim even more tax relief through self-assessment.

    Is it the right choice for me?

    The first question to ask yourself is whether or not you are satisfied with your existing pension. Is it performing as you’d expect? Do you feel it’s underperforming? If the answer is yes you may want to consider switching the funds to a SIPP. If you feel confident in making the decisions yourself (you can always seek the help of a financial advisor) then a SIPP may be the ideal choice for you. It could well be time for a change.

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