I have a self-invested personal pension with an independent provider. There is only around £200,000 in it, of which £140,000 is invested for income with a stockbroker, £50,000 is in an insurance company's investment fund and the rest is in cash. I am being charged by all these and am not at all happy with the investment advice I receive from my other investment manager. I am drawing down £15,000 a year income. What options do I have?
My starting position is that you probably have the best vehicle to meet your needs. I assume you fully understand all the risks with drawdown, whereby you accept the investment risk in the hope of achieving better returns. You also retain access to your capital which, under current legislation, is not lost should you die.
It is always very important under Sipp drawdown to continue to monitor your options. These include not only the ability to use all or part of your fund to buy an annuity but also the option to alter the investment structure of your fund relative to your drawdown needs. Health and attitude to risk are liable to change and should always be taken into account.
You have chosen to invest in an independent Sipp with outside fund managers. When drawdown was first introduced in 1995, my basic recommendation was always to use such vehicles where drawdown was required. Originally, once drawdown was taken, it was not possible to move from one personal pension provider to another. It was for this reason that, when drawdown was required, I always recommended an independent Sipp providing access to all investment opportunities.
The regulations have now changed, allowing you to move from one provider to another while in drawdown. This means we can change investment manager and provider.
If you are unhappy with the performance of your Sipp, I would suggest it is not your Sipp provider that is at fault but your investment adviser.
Initially, most leading insurance companies offered drawdown with their personal pension plan. It was not uncommon for commission on drawdown personal pensions to be as much as 6 per cent of the pension fund or higher. This obviously increased costs. In the early years, this was a further consideration and one taken into account when recommending an independent Sipp with outside investment managers. Today, however, we have seen how it is now possible to change Sipp provider and investment manager and, with the advent of new stakeholder pensions, the costs levied by most insurance companies on their personal pensions in drawdown have fallen dramatically.
Unfortunately, another situation has occurred, in that most of the leading insurance companies have outsourced their drawdown administration. I believe those insurance companies have done themselves a disservice and complicated issues as well as increasing costs. There still remain a handful of insurers which will provide income drawdown within their own personal pension without outsourcing the administration and now offer acceptably costed plans. Two leading companies in this area are Legal & General and Skandia Life.
If you are unhappy with the fees you are paying today to your Sipp provider and the investment performance you are achieving, then it is possible to transfer your Sipp in drawdown to another independent provider and investment manager or, alternatively, to a simpler personal pension with an insurance company. The choice of investment opportunity that you wish to have will dictate the eventual provider.
One final point is that, if you retain your existing Sipp provider and merely change the investment adviser, this will result in no change to your current drawdown structure. If, however, you change the provider of your pension, then the new pension provider will be required to undertake a review of your drawdown and apply a new three-year maximum income figure.
If your funds have fallen in recent months, you could find yourself in the position of having to take a lower level of drawdown income for the next three years.