Pension Transfers

Quite rightly our regulator, the Financial Services Authority, is looking closely at pension transfers because they have to be justified and I suspect too many are not. One area to consider is to switch the money to a SIPP or Self Invested Personal Pension. They are certainly much more flexible than the traditional life assurance company product but do investors really want the freedom to invest directly in shares or commercial property? And having those extras and not using them can push up the cost of running a pension without good reason. There are also far too many SIPP providers and a cull is required. At the same time if you invest in a Self Invest Personal Pension and don’t invest in life company insured funds then your pension money is not protected by the Financial Services Compensation Scheme. This point was made plain in a good article in a September edition of the Daily Telegraph.

Another query about pension transfers is to do with the new anti-forestalling legislation. There is a danger that at the moment if an investor is contributing more than £20,000 a year to a personal pension scheme and he switches the money to a different pension plan - perhaps a SIPP - then he loses the ability to continue to contribute at more than £20,000 a year. Of course not many people contribute £20,000 to a personal pension but it seems that these contributions include both employee and employer contributions so I suspect a fair few directors could be caught be this switch particularly if they are coming out of defined benefit/final salary plans.