Should you transfer a pension to a SIPP?

It is common to accumulate several pensions over your working life, whether through workplace pensions or personal pensions. Once they are set up, it is easy to leave them alone for years.

However, it can pay to review your pensions periodically. This could be because the charges may no longer be competitive, the investment options on offer may no longer suit your objectives, or perhaps your retirement plans may look different from when you first started out.

This leads some investors to ask: should I transfer my pension to a SIPP?

Can I transfer my pension?

The answer is often yes, although whether it is appropriate to transfer your pensions depends on the type of pensions you hold.

Many defined contribution pensions – which represent investment ‘pots’ – can be transferred relatively easily. This includes many personal pensions and old employer schemes that are no longer receiving contributions.

However, extra care is needed if you have a defined benefit pension, such as a final salary pension, or other pensions with safeguarded benefits or valuable promises such as guaranteed annuity rates. These arrangements can provide a guaranteed income in retirement and may contain other valuable benefits that could be lost, if transferred.

For this reason, anyone considering whether to transfer a defined benefit pension should proceed with caution and, where appropriate, seek professional guidance from a financial adviser.

Find out more: Should I combine my pensions?

What is a SIPP?

A SIPP is a type of pension that offers greater control over how your retirement savings are invested. 

While some certain pension schemes provide a relatively limited selection of funds, a SIPP typically allows access to a much wider range of investments, including:

• Shares
• Funds
• Investment trusts
• Exchange-traded funds (ETFs)
• Bonds

This flexibility allows investors to construct a portfolio tailored to their own objectives, risk tolerance and time horizon.

Find out more: How does a SIPP work?

Why might you move a pension to a SIPP?

The main attraction of a SIPP is investment freedom. Many workplace pensions offer a range of funds that may be low cost and entirely suitable for many savers. However, some investors prefer more control over asset allocation and investment decisions.

For example, a SIPP allows you to choose exactly how much exposure you have to UK shares, global equities, bonds or specialist sectors, and to hand pick the individual investments that make up your portfolio.

A SIPP also allows you to consolidate multiple pension pots in one place, making it easier to monitor your retirement savings and understand your overall asset allocation.

However, with greater flexibility comes greater responsibility. A SIPP is generally most appropriate for confident, hands-on investors who are comfortable researching, choosing and managing their own investments.

Should you transfer a workplace pension to a SIPP?

You should always prioritise a workplace pension to maximise the amount your employer pays into your pension before considering a SIPP.

The key benefit of a workplace pension is employer contributions. In many cases, your employer will match or supplement employee contributions up to certain limits, helping your retirement savings grow faster. Turning down these contributions could mean missing out on a valuable part of your overall remuneration package.

Workplace pensions can also be administratively convenient. Tax relief is commonly applied automatically through payroll arrangements, ensuring contributions receive the appropriate treatment without requiring additional administration. In contrast, personal contributions to a SIPP attract basic rate tax relief reclaimed by the provider. Claiming any higher or additional rate relief is down to you, commonly via your tax return.

Finally, workplace pensions often come with low charges. This makes them very efficient investment vehicles from a cost perspective. Though this is not always the case – especially for older schemes – so it’s worth checking how yours stack up.

Keep your workplace pension and use a SIPP alongside it?

Choosing a SIPP does not have to be an either-or decision. Many investors continue contributing to their workplace scheme to maximise employer contributions while also making additional contributions to a SIPP. It’s also possible to transfer workplace pensions no longer receiving contributions, i.e. from a previous employer, allowing you to bring retirement savings together into a SIPP and benefit from greater investment freedom.

This approach can provide the best of both worlds. You maximise what you are receiving from your employer and have greater flexibility for the additional part of your retirement savings, which you can then tailor to your personal preferences.

In some cases, individuals who run their own company or have a particularly flexible employer may even be able to arrange for contributions to be paid directly into a SIPP.

Should I transfer my pension to a SIPP if I have a Defined Benefit scheme?

In most cases, no. Investors should think very carefully before transferring a defined benefits pension.

Unlike defined contribution schemes, which rely on investment performance, a final salary pension typically promises a level of retirement income linked to salary and years of service. These schemes provide a valuable, guaranteed income for life and may include additional protections for spouses and dependants.

Before deciding to transfer a defined benefit scheme, investors should fully understand what they may be giving up by speaking to a qualified financial adviser.

Can I transfer my pension to an ISA?

Some people wonder whether it is possible to convert a SIPP into an ISA, but pension assets cannot be transferred directly into an ISA account. However, once you are eligible to access your pension, it may be possible to withdraw funds and subsequently invest money into an ISA, subject to annual ISA allowances and pension income tax rules.

Investors should remember that pension withdrawals beyond any available tax-free lump sum may be subject to income tax.

How does the SIPP transfer process work?

If you decide that moving your pension is the right option for you, the process is usually straightforward. When transferring a pension to a SIPP provider, the new provider will manage the administration on your behalf.

For transferring to the Charles Stanley Direct SIPP, you should:

1. Open a Charles Stanley Direct SIPP account (if you have not already done so)
2. Complete the transfer form, providing the details of the existing pension scheme.
3. We will then arrange the transfer
4. Invest the transferred assets in accordance with your chosen strategy

Find out more: When can I afford to retire?