Was transferring to a SIPP a bad idea?
|Retirement | SIPP
Asked by pauljohnstone, submitted
30 December 2012.
I have put my SIPP with a well known company, but after a year, see that the returns they made for it are just about wiped out after charges. The fund value is only £100k, and I am wondering whether a SIPP is the right option. I am age 62, have deferred the date until I am 70. I think I could get a better return myself, but of course can't draw it all out. Any advice please?
Answered by Justin on 04 January 2013
The key things to consider are how much you're paying for the SIPP wrapper, the cost of the underlying investments held and the quality/cost of any advice you've taken. And, of course, whether you're actually benefitting from the increased investment selection that SIPPs offer.
Without knowing which SIPP and underlying investments you're using, I can't comment on their cost. But take a look at our guide to low cost SIPPs to get a feel for what's reasonable.
If you've used an adviser they've probably taken the bulk of their remuneration (either commission or fees) at the outset, which would have a greater impact on returns over the first year than subsequent. It would be worth checking whether you're paying ongoing amounts to an adviser, as these will obviously further eat into returns (although if the advice is good they may be worthwhile).
If you're not using an adviser then I assume you're holding some funds you've chosen yourself. This is likely a cheaper option, whether it's better depends on your investment selection versus an advisers. In any case, a year is too short a timescale to judge performance.
As you're only 8 years away from retirement it's important to consider how you plan to take an income from the pension when you get there. You'll have the option to swap the pension fund for an income for life via an annuity, or leave it and draw an income (commonly called 'income drawdown').
If you plan to buy an annuity then I'd avoid taking excessive risk. In fact, you arguably want to take very little risk at all at this stage (as a crash over the next 8 years could severely hit your retirement income), but it's a personal choice. It's debateable whether income drawdown is sensible on a £100,000 pension fund, it largely depends on your overall financial position. However, if this is your aim you could possibly afford to be a little less cautious as the money could remain invested for a lot longer - although losses would still hurt.
Provided the SIPP charges are reasonable, you probably haven't made a mistake (unless you paid hefty penalties to transfer your previous pension into the SIPP). The extra investment selection could prove useful and provided you invest sensibly you'll hopefully end up sitting pretty. However, if you're using an adviser I'd watch closely to ensure they know what they're doing investment-wise (a surprising number don't!) and that you're getting value for money.
Feel free to post further details below and I'll follow up.