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What to do if you don’t want to manage your Sipp anymore

Tired of managing your Sipp? There are plenty of other options
May 27, 2021
  • There are many ways to manage your pension 
  • Consider your Sipp in wider context of estate planning

The beauty of self-invested personal pensions (Sipps) is that you have the ability to make your own investment decisions, a wide range of options, and flexibility over how and when to withdraw money provided you are over 55. However, even if you are happy managing your pension now, all investors should consider how it will be run if they lose interest in or capacity for decision making.

If you have decided to step back from portfolio management there are a number of options available: buy an annuity, invest via a robo-adviser, opt for a platform’s investment pathway or get traditional financial advice.

 

1. Annuity

Annuities are a guaranteed lifetime income from an insurance company which remove investment risk entirely. While these used to be the most popular form of pension income, poor rates coupled with the increased flexibility of managing drawdown yourself have led to a decline in annuity purchases. 

In most cases, an annuity taken out now will not offer good value for money. According to Hargreaves Lansdown’s website, £100,000 would buy a 65-year-old a ‘single life’ annuity, with no guaranteed period and an annual payment of £4,916 per year. If they wanted to add in inflation protection, this would fall to £2,851 per year. The older you are, or if you are in poor health, the more attractive the rate becomes. 

Kay Ingram, chartered financial planner at LEBC Group, says to never accept the annuity terms offered by an existing pension provider. Annuity rates fluctuate and accessing the full market can result in an uplift of between 8 to 15 per cent more income, rising to up to 50 per cent more if health and lifestyle factors are considered. Ingram adds that the best way to access the whole market is to take advice.

Read more on when an annuity might be appropriate.

 

2. Robo advice 

Robo-advisers are increasingly popular as a low-cost alternative to traditional advice. If you invest with a robo-adviser such as Nutmeg or Wealthify, you fill out a questionnaire to determine your risk profile and the provider will construct a portfolio. Nutmeg, for example, has 10 portfolios, with 1 being the lowest risk and 10 being the highest risk. According to its website, its highest risk portfolio has achieved an annualised average return of 9.5 per cent since its inception in 2012, and a medium risk ‘level 5’ has had an average annual return of 5.2 per cent. If you want to go into drawdown with Nutmeg, the only option is to take your income monthly. Wealthify offers flexibility on frequency of drawdown, which is carried out through its custodian, Embark.  

If you use a robo-adviser, you still have to take responsibility for assessing how much to withdraw each year and when changes to your risk profile should be made. Also be aware that they are not that cheap. Nutmeg, for example, charges 0.75 per cent on up to £100,000 of assets and 0.35 per cent beyond that. Wealthify’s charges are lower for smaller pots, at 0.6 per cent, with a more expensive ethical option. 

 

3. Pension investment pathways

Pensions pathways were introduced by the regulator this year following concern that too many savers had too much of their pension in cash. The pathways available to people with pension drawdown accounts offer default funds fixed to four different profiles:

  • I have no plans to touch my money in the next five years
  • I plan to use my money to set up a guaranteed income annuity within the next five years
  • I plan to start taking my money as income within the next five years
  • I plan to take out all my money within the next five years

The regulator has tasked every pension provider to come up with four portfolios that fit each criterion. A problem with pension pathways is that they are not very nuanced, are designed with only five-year time frames in mind and do not provide any guidance on drawdown.

Ingram says that investment pathways “may prove inadequate in maintaining income over the longer term”. With retirement potentially lasting for 30 or 40 years, sustainability of income is crucial. 

If you opt for an investment pathway, it is important to look at what the pathway invests in to assess its suitability for you. If you opt for pathway 1 (no plans to touch your money for the next five years) on Hargreaves Lansdown, for example, the fund you will be put into has 25 per cent in bonds and 27 per cent in commodities.

 

4. Vanguard and the multi-asset world

Vanguard’s Target Retirement funds are one option, as is the extremely popular Sipp it launched in February last year. The Sipp account fees are low at 0.15 per cent, capped at £375 per year, and the Target Retirement funds allocate you a portfolio of shares and bonds depending on your retirement date. Anyone holding the fund set to a retirement date of 2045 has roughly 80 per cent in shares and 20 per cent in bonds, with the allocation moving to 50 per cent shares and 50 per cent bonds for the 2020 fund. Many other multi-asset funds are available, although those with a specific retirement date in mind are fairly rare.

Vanguard has also shaken up the advice world by launching its own low-cost advisory service last month. Vanguard Personal Financial Planning is available for customers with £50,000 or more invested and is designed for those saving for retirement rather than those about to draw on their pension. The service costs 0.79 per cent – a 0.5 per cent advice fee, fund charges of 0.14 per cent and a platform fee of 0.15 per cent. 

Those with £50,000 or more get digital financial advice on setting up a portfolio of up to 13 funds, and those with at least £100,000 get a team of financial planners available on the phone and a review each year. You get a dedicated financial planner and face-to-face support when your pension pot hits £750,000.

 

5. Traditional financial advice

Pensions can be complicated and none of the aforementioned options will provide you with holistic financial planning. The tax treatment of pensions is generous but complex, and the rules can trip people up. Estate planning is also nuanced and not accounted for in an automated solution. An adviser will provide you with bespoke cash flow modelling and a framework for working out how much money you can safely withdraw from your pension.  

Charges for ongoing advisory or discretionary fund management vary. Some firms charge a flat fee for initial advice and financial planning while others charge a percentage of the funds to be invested. All firms are required to disclose their charges and any product charges in full before investments are made or services bought. LEBC, for example, charges a flat fee of £1,400 for initial advice, a 1 per cent implementation fee and an ongoing advice fee of 0.75 per cent. Ingram says that this is a mid-range price model.

Having a financial adviser can also be useful for your dependents in the event of your death. Pensions are often used in estate planning as they are not subject to inheritance tax. Whatever option you choose for managing your Sipp, make sure that your beneficiaries know exactly what their options are so you do not leave them vulnerable to making poor investment decisions or falling victim to a scam.