What is a Self-Invested Personal Pension (SIPP)?
SIPPs are a Government approved personal pension schemes. They are similar to standard personal pension schemes, however they offer much broader investment powers than generally available. They allow you to hold multiple investments products to grow your pension fund.
It is an individual contract between you and the pension provider. Different pension providers offer different investment options, which can include:
- UK and overseas property
- Unlisted shares
- Collective investments (such as Unit Trust and Open Ended Invested Company)
- Property and land insurance bonds
- Deposit accounts with banks and building societies
- Commercial property
The above list is not exhaustive, and not all SIPP providers allow you to invest in the full range of investment options available.
SIPPs are a flexible pension scheme, however it should be noted that they are not without risk, as they do rely on the success of the investments. Also, employers are not obligated to contribute to a SIPP, unlike with the new workplace pension scheme.
However, there are no limits on the number of different pension schemes you can belong to. There are limits on the total amounts that can be contributed across the schemes.
One of the reasons people choose SIPPs is the tax benefits you could be entitled to. With a SIPP you could get up to 45% tax relief on contributions, as well as no UK capital gains tax or UK income tax. However, the actual tax benefits received will be dependent upon your own individual circumstances.
There are limits to the amount you can save in SIPP to still get tax relief. If you are working, since April 2016 the amount you can contribute has been reduced to £1 for every £2 earned over £150,000, until the tax free limit reaches £10,000.
If you are no longer working, you can contribute up to £3,600 per tax year and will receive basic rate tax relief.
As well as an annual allowance, as of April 2016, the maximum you can save in your lifetime, tax-free, is £1,000,000.
Who Sells SIPPs?
Typically, SIPPs are offered by investment companies or stockbroker services, however some insurance companies and Banks also offer SIPPs.
While charges do vary from provider to provider, setting up and managing your SIPP can be quite expensive, and come with high fees. Typical fees include:
- Start-up fee;
- Annual management fee;
- Individual trade/deal fee;
- Transfer or exit fee; and
- Income drawdown charges.
The most cost effective provider will depend on how much you invest, what you invest in, and how often. Generally, the more money or ‘sophisticated’ the SIPP, with a wider range of chosen investments, the more the SIPP will cost.
Some providers offer model portfolios for people who are unsure where to begin with their SIPP. The risk levels of the models varies from ‘low’ to ‘adventurous’ to help get you started.
Storage Pods/Store First
Many pension companies have been cold calling, convincing people to transfer their pension money from their existing provider and putting it into a SIPP, which will then be invested into Store First.
Store First is a storage pod investment company based in Lancashire. The general idea is that the investor buys a number of storage units, which will then be rented to people wanting to store their possessions, the returns for which will be passed on to the investor.
However, as the investment is through the pensions companies, investors have been finding that they are not receiving any returns on the storage pods. Many are finding that the investment is actually costing them money.
Financial Advisors were recommending the investments to increase their commission, which they did not disclose to the investors. A BBC documentary also discovered that only around 10-14% of the storage pods are actually rented, yet in the promotional material 80% was promised to be rented out.
As with most SIPPs, investing in storage pods requires a management fee to be paid, however some of the pods were offered at incredibly cheap rates meaning the rental income from the pods is less than the cost of the management leading to a returns loss which the investor will have to pay for.
How were SIPPs mis-sold?
The Financial Conduct Authority (FCA) has warned that many savers may have been mis-sold their SIPPs if their Independent Financial Advisor recommended they move their retirement savings into the SIPP.
While SIPPs do offer more freedom of investing than a typical pension, some types of SIPPs can hold very risky investments such as overseas property or other unregulated investment schemes. Where a scheme is unregulated, there is a greater risk of default in the pay-outs or the scheme being a scam with potentially no recourse available.
There are several reasons a SIPP could have been mis-sold. Below are a few of the more common reasons.
- Poor advice given the IFAs, this could include being advised to switch where the existing scheme may be more suitable, simply to earn the advisor additional commission. Potentially, you were/have been left in a worse position.
- The fees associated with the opening, management and transactions were not fully explained, or were not explained at all.
- If you were new to investing you may not have understood the process, or the investments you were advised upon.
- The risks of investing in a SIPP may not have been properly explained.
- The tax implications may not have been fully explained. If you exceeded the £40,000 limit, you would have to pay 55% UK income tax.
- The SIPP was promoted as a way to avoid paying tax.
- High pressure techniques were used to secure an investment.
This list is not exhaustive, however if you feel any of them apply to you, then you may have been mis-sold your SIPP.
What does this mean for me?
If you have a SIPP then it is important to establish what you knew about the SIPP at the time it was taken out, as well as what your attitude to risk was at the time.
If you feel that any of the reasons listed above apply to you, then you may have a potential claim for mis-selling.
How can we help?
Here at Cooper Stern we are experts at advising individuals and businesses on potentially mis-sold complex financial products.
If you feel you have been mis-sold a SIPP and would like us to look into the matter for you then please get in touch. You can fill in our simple online enquiry form and one of our expert advisors will call you back to discuss your mis-sold SIPP in more detail. Alternatively, you can call us on 01204 328 287 and we will be more than happy to discuss your queries.