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Rights of passage

I have heard people talk about the possibility of transferring their protected rights benefits into their Sipp. Is this possible and, if so, is it appropriate for me?

As from October 1, 2008, protected rights are now permissible investments in Sipps.

If you already have a Sipp, then it would seem logical (in most circumstances) to add the protected rights. However, this depends on your needs and circumstances and if you only have a relatively small protected rights pot there must be a question as to whether a Sipp is the most suitable vehicle.

The FSA has issued an announcement on this subject and reiterated that any transfer of protected rights must be subject to the same advice issues as normal, n particular:

  • Is there a real need for the investment flexibility offered by a Sipp?

  • Does a Sipp mean greater cost?

  • Does a Sipp meet with the client’s needs and attitude to risk?

  • Will any penalties/costs be incurred by moving protected rights monies into a Sipp?

    The first consideration is to determine why your existing plan clearly does or does not meet your needs.

    This might be for a number of reasons, but they must be clear and robust.

    There is a regulatory expectation for the existing arrangement to be reviewed to identify if your needs can be met through any change to the arrangement or utilisation of any option before a recommendation to transfer be consideredIf advising on transferring protected rights into a new or existing Sipp, one would also need to give consideration to the following areas to satisfy requirements on suitability of advice:

  • Your current and future circumstances that might affect pension advice, that is, the likelihood of using this plan to receive rebate contributions should you want to contract out of the S2P.

  • Your expectations and experience of investment.

  • The scheme/plan features required to meet your specific identified needs.

  • The availability of rolling into an unsecured pension plan – if you are likely to do so and the term to NRD is short, then you should be aware that before drawing any benefits, you should reappraise your full at retirement options.

  • Where a transfer to a new or existing Sipp is being recommended you should clearly understand what is being recommended, the extra cost incurred and the additional benefits provided in return. These should be fully documented.

  • Your requirement to access the greater investment flexibility through supermarket/platform.

  • Your requirement to purchase property or syndicate property purchase with other Sipp scheme members (and has the funds and lifestyle to support it).

  • Your requirement for access to lending to purchase Sipp property. Relevant information will be required for the file such as the type of property purchase, valuation, etc.

  • Your requirement for access to discretionary managementThe above is not extensive and other considerations may need to be taken into account, for example, if you want to be speculative with only a proportion of your pension scheme saving, then a hybrid Sipp might be more appropriate using insured funds for the protected rights and the self-investment facilities to gain access to wider investment classes/ specialist investments.

    Patrick Murphy, FIFP, FPFS, Bluefin

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