Are SIPPs worth investing in?

This is a question many people are asking themselves after pensions contributions data from the first quarter of the year led to experts encouraging savers to review their pension options.

Recently released data from the Office for National Statistics (ONS) revealed that employer pension contributions fell 5% between January and March compared with the final quarter of 2020.

The ONS says this drop mainly came from employers committing less cash into final salary – or defined benefit – pension funds. 

Despite this drop, the ONS also revealed the first quarter of 2021 saw a 2% increase in the number of workers paying into workplace pensions, with employee and employer contributions to these both growing.

One pensions expert, James Andrews of money.co.uk, said, “Pension contributions have been massively affected by Covid-19, just like many aspects of our day-to-day lives.

“But it’s also good to see people paying in where they can, with more people paying into a workplace pension and a rise in total contributions too.

“And it’s money well spent in most cases, with early pension contributions having longer to grow.

“Workplace pensions are also topped up by bosses, seeing workers earning more than £10,000 a year offered at least an extra 3% of their salary to pay into a pension as long as they pay in 5% themselves.

 “If you want to save more than this, some employers will let you add extra voluntary contributions on top.

“Alternatively, you could take matters into your own hands and open a self-invested personal pension (SIPP).

“You won’t get a top-up from your boss, but you will get a tax break on the first £40,000 you save a year until you start drawing money from your funds.”

Andrews also cautioned, “All direct contribution pensions carry an element of risk, due to them being investments, but a Self-Invested Personal Pension could be considered a greater risk due to the fact the decisions are all up to you, as opposed to a fund manager or similar professional.

“However, it is worth remembering that a pension is a long-term investment and as such the higher rewards associated with shares and investments may outweigh short-term losses.

“Pensions for many of us are a daunting prospect but, regardless of your situation, there are experts who can assess your individual situation and advise you on your options.”

Exercise caution before opening a SIPP, especially if you’re leaving a defined benefit pension to do so

If you’re considering opening a SIPP and starting from scratch, perhaps to create an additional pension pot for yourself, then that’s a potentially sound decision, subject to the financial advice you receive before doing so.

More significant problems with SIPPs occur when you transfer a significant lump sum into a new SIPP, and especially if you transfer out of a guaranteed benefit pension when doing so. It is in this scenario where a significant volume of mis-selling takes place, potentially leaving you vulnerable to losing some or all your pension.

What do I need to be aware of before a pension transfer?

Note that if you’re considering transferring your pension, that if your pension transfer is worth £30,000 or more, you must, by law, receive financial advice.

Furthermore, if you have a defined benefit workplace pension, the Financial Conduct Authority (FCA) recommends that the default starting position of your financial advisor is that you’re better off not transferring.

With some pension experts encouraging people to review their pension arrangements and consider a pension transfer or opening a SIPP, ensure you’re vigilant around receiving any cold calls or correspondence relating to a transfer.

If you are thinking about any sort of pension transfer, or opening a SIPP, there’s also lots to be aware of, which you can learn more about below.

How do you know if a pension transfer or SIPP has been mis-sold?

The below provides guidance around what to look for if you’ve already transferred out of a final salary pension into a SIPP but can be equally useful in telling you what to look out for if you’re thinking of consulting with a financial advisor about taking such a step.

Do you recognise any of these scenarios?

If you have:

Your SIPP might have been mis-sold.

Where was your SIPP invested?

If your SIPP will be or was invested in unusual, high-risk or even non-existent assets such as:

Your SIPP might have been mis-sold, or your financial advisor may be trying to mis-sell you a SIPP.

What did your financial advisor tell you?

If your financial advisor:

Your SIPP might have been mis-sold, or your financial advisor may be trying to mis-sell you a SIPP.

Has your pension transfer or SIPP been mis-sold? Contact Return My Money now

If you already hold a SIPP and are concerned you’ve been mis-sold, contact us today.

Here at Return My Money, we offer a FREE, no-obligation review of your pension transfer or SIPP, meaning you have nothing to lose by getting in touch and speaking to us.

What are you waiting for?