SIPP your protective rights

Since 1st October Contractors have enjoyed greater control over how SERPs and S2P pension funds are invested . Here, Andrew Gains looks at whether SIPPs make sense and how you could benefit from the changes.

The changes, announced in June of this year, for the first time allow investors to transfer their protected rights funds into self-invested personal pensions (SIPPs). These funds are made up of national insurance contributions from taxpayers who have decided to opt out of SERPs or the State Second Pension.

Why invest in a SIPP?
One of the major benefits of a SIPP is that it offers the flexibility to invest in a wide range of investment opportunities including shares, unit trusts, investment trusts, gilts, insurance funds and property, giving you more control over your portfolio. Now that you can invest your protected rights into the SIPP it should increase the options available to Contractors that want to take a more active role in the management of their pension.

It will also be easier to transfer funds across various pension schemes or consolidate pension rights in one "easy to manage" place which should help to simplify the pension process. Before SIPPs, consolidating your pensions meant a minimal amount of investment options but now you can use a SIPP to monitor all of your retirement funds with access to a wide range of options and increase the potential of your investment without the hassle of extra paperwork. The fewer separate pension contracts you have to manage, the easier it is to manage your funds potential.

However, if you are considering a transfer to a SIPP then it is important to be aware of the pros and cons. Having control of your funds performance can be a daunting task for many and you may find it beneficial to contact an Independent Financial Advisor for help. At Contractor Financials we are able to give impartial, timelyt advice to Contractors on the suitability of a SIPP for your individual circumstances so that you can avoid the problems that can occur.

Watch out for hidden pitfalls
SIPPs are not ideal for everyone and it can be difficult to ignore the marketing blurb about the many benefits and instead concentrate on the statistics. One of the major criticisms of the schemes is that people may be cajoled into transferring without fully understanding the effect of charges under their new arrangement. These costs can be much higher than their existing investments. For some, a traditional personal or stakeholder pension would suit their needs better and would be more cost effective and would be equally able to accept transfers in of your protected rights.

If you do take the SIPP plunge then under the new legislation your protected rights fund must be separately identified from other funds in the SIPP until predicted rule changes in 2012. It is important to make sure that the provider you choose can manage this stipulation whilst still offering you the benefits available with the traditional SIPP. The provider must also be committed to the market because in recent months several have merged or appear likely to pull out of new investment in systems because they have not acquired sufficient critical mass in terms of client numbers.

Competition is currently high amongst SIPP providers since the rule changes came into effect and this means that Contractors must keep their wits about them if they are to find the provider offering the best deal. Always make sure that you receive an illustration of what you could expect your pension to be worth when you come to draw funds on retirement. Whilst these figures can never be completely accurate, they can provide you with a figure that you can use to compare providers.

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