Updated: November 20, 2019

Transferring a Final salary pension into a SIPP

Is it a good idea to transfer your final salary pension into a SIPP? The brokers we work with are on hand to provide all the advice you'll need

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Richard Angliss

Author: Richard Angliss - Finance Expert

Updated: November 20, 2019

When it comes to funding your retirement, SIPPs and final salary pensions are two options to consider. But which is the right choice for you, and if you’re looking to make the switch, is it even possible to transfer a final salary pension into a SIPP?

Whatever your goals and level of pensions knowledge maybe, you’re bound to have further questions, but the answers aren’t always obvious without the benefit of professional advice.

We work with expert pension specialists who can advise you whether to transfer your final salary pension to a SIPP and answer any questions you have about these products. If you’d like to be matched with a suitable expert, make an enquiry and we’ll be in touch to discuss your requirements.

This article covers the following:

Can I transfer a final salary pension into a SIPP?

Yes, but whether you should do so is another matter entirely, and the answer will depend on your needs and circumstances. You’ll also need to take professional advice as this is a legal requirement of switching out of any defined benefit scheme such as a final salary arrangement.

The pensions experts we work with are ideally placed to help you decide whether this is the right course of action, and are qualified to act as your independent advisor as per the legal requirement.

Read on for more information on the pros and cons of transferring from a final salary pension to a SIPP, or make an enquiry for a free, no-obligation chat and we’ll arrange an initial consultation with one of the experts we work with.

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Should I transfer my final salary pension to a SIPP?

This will depend on a number of factors, including your needs and financial circumstances.

Certain investors find SIPPS handy because they allow you the flexibility to choose and manage your own investments. A wisely-invested SIPP could grow your pension pot at a superior rate when compared with some of the alternatives (depending on a number of factors), but managing it will be a lot more hands-on.

The SIPP serves as a “wrapper” which allows you to move all your pension savings and assets into one place. Depending on your SIPP provider, these assets may include unit trusts, investment trusts, government securities and endowments, as well as deposit accounts and various types of commercial property.

The Financial Conduct Authority (FCA) requires you to consult a qualified advisor to enact the transfer, and to help you reach a fully informed decision on whether it’s in your best interests to make a final salary transfer to a SIPP .

Make an enquiry and we’ll pass you over to a pensions expert with the necessary credentials.

Final salary pension versus SIPP

Final salary pension schemes (which are a class of defined benefit scheme) are plans provided by some employers that guarantee an agreed salary for life when you retire. In some cases, the employer averages the salary over the last few years before you retire (this is known as a ‘salary average’ pension).

As well as offering you a guaranteed income for life, final salary and some salary average pensions may additionally give spouses and dependents extremely attractive benefits that your SIPP doesn’t have, so it’s important to weigh up these benefits against the advantages of moving to a SIPP.

On the other hand, a SIPP allows you to control your own assets. Not only do you have a high degree of choice over the assets and companies you invest in, you also have more flexibility in how you take your benefits. For example, you can make any amount of withdrawals, move around your assets and control tax structure as you please. You could also pocket your 25% tax-free sum in one go or withdraw it in instalments.

The decision on whether to transfer a final salary pension into a SIPP is not a simple one.  For a bespoke analysis of the pros and cons, make an enquiry. We’ll introduce you to one of the expert pensions advisors we work with. They will be able to answer all your questions and help you understand how a SIPP pension arrangement might suit your needs and circumstances.

Are there restrictions on transferring a final salary pension to a SIPP?

The short answer is ‘yes’, there are likely to be restrictions. This is especially true if your final salary pension is an unfunded public sector scheme. Employees in this sector include teacherspoliceNHS, and the armed forces.

You’re also not allowed to transfer money from salary pension into a SIPP, or into other pensions schemes, if you’ve started or are in the process of income drawdown.

Finally, transfer costs can be prohibitively high, so most pensions advisors would likely urge you not to consider transferring pots worth under £100,000.

Advantages of transferring final salary pension to SIPP

There are certain factors that can make converting a final salary pension to a SIPP an attractive option:

  • Flexibility to choose and manage your own investments:
    Final salary pensions offer a high degree of certainty in that you’ll have a guaranteed income for life. However, they aren’t investment products, so your income doesn’t have the potential to grow. With SIPPs, however, not only can you invest your pension savings, you can choose when and where to invest from a wide range of assets with the potential to increase your income.
  • More money to dependents:
    The final salary option gives the holder’s spouse only 50% upon their death, leaving nothing for the rest of your family. In contrast, with a SIPP the whole pot transfers to the family of the deceased holder. They, in turn, can decide what to do with the SIPP, leaving it untouched, or withdrawing income in one go, or in instalments, as they wish.
  • More flexible access to your money:
    Final salary pension plans are paid in instalments over your lifetime. The longer you live, the more money you have, so those with reduced life expectancy can end up getting just a fraction of their pot. SIPPs, on the other hand, may yield enhanced annuities for impaired health and can be taken as a lump sum.
  • Earlier drawdown benefits:
    The final salary pension locks you out of your benefits until you’re aged 60 or 65. With the SIPP you can withdraw money from your pension earlier, starting from age 55.
  • Tax benefits:
    In a SIPP, your money can grow free of capital gains and income tax. Conversely, a final salary pension may be only a fraction of your other sources of income: this can result in the pension bundle pushing you into a higher income bracket and raising your tax rate.

Disadvantages of transferring a final salary pension to a SIPP

Disadvantages of transferring a final salary pension to a SIPP include:

  • You’ll be giving up a guaranteed income for life. Even if your SIPP yields more money overall, it could run out during your lifetime, leaving you with no ongoing income.
  • You could lose ongoing benefits for your spouse and, possibly, for your children. Depending on your group scheme, you may lose other benefits, too.
  • Your investments are more vulnerable to risk, since assets in a final salary pension scheme are typically invested in safe investments, like commercial property, shares or bonds which are chosen for their resilience to market volatility.
  • SIPPs come with higher charges than standard pension plans. They cost at least £450 – or about 1% for a £50,000 pot – plus trading charges and fund fees of around 1.5%.
  • SIPPS are self-managed, which requires you to have a higher degree of involvement in managing the portfolio. This can become time-consuming and could be increasingly difficult as you age.
  • Account-holders who are inexperienced investors might find SIPPs high risk. In fact, if you’re thinking of transferring a final salary pension to a SIPP,  the FCA obliges you to engage an independent financial advisor before you switch.

If you want to discuss transferring your pension plan to a SIPP, talk to one of the independent financial advisors we work with. Make an enquiry for a free, no-obligation chat and we’ll match you with an expert in SIPP pensions.

What are the alternatives?

SIPPs are just one type of pension plan you could transfer into if you wanted to switch from a final salary pension. The other main options are:

In short, you can transfer your final pension into a SIPP but you may lose certain benefits and incur other risks. Nor would most employers be willing to pay funds into a SIPP. That said, there are circumstances where it might be viable, and in those cases, you should speak to an expert pensions advisor, like the ones we work with, for guidance.

Speak to an expert SIPP advisor

Transferring a final salary pension into a SIPP can be a complicated process in the wrong hands, but with the help of an experienced pensions expert, you can ensure that the transfer goes smoothly. You’ll also ensure you get the advice you’re required to take by law when making a transfer of this type.

Call 0808 189 0463 or make an enquiry and we’ll be in touch shortly to arrange an initial conversation with no-obligations to discuss your requirements.

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We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions. Ask us a question and we'll get the best expert to help.

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Richard Angliss

Richard Angliss

Finance Expert

About the author

Richard Angliss has made a career in financial services which stretches over 40 years.

His early career was spent learning about the various financial products and applying them to prudent advice, working for one of the largest life assurance and investment firms. After that he joined the financial services arm of a very well-known firm providing independent advice to their 8 million customers.

For the last 20 years he has been involved in building software solutions that help Advisers and clients work together to achieve good financial outcomes and helping to set up three independent advisory firms. He also has written many articles for financial services publications and provided commentary for newspaper journalists.

At an early stage in his career he realised the great satisfaction that comes with being able to help people achieve their goals and protect their families. “Regulation of financial services has hugely impacted on ensuring people get appropriate advice. The issue these days is access to that advice and just as importantly regular reviews to make sure that everything stays on track”.

With the growing development of online resources such as Online Money Advisor he sees a great future for people to access advice to make their pension and investment work harder for them.  Plus, of course, to ensure they have insurance products in place that will be required when unforeseen events happen.

He knows getting that balance right is crucial to prudent financial planning and the wellbeing of individuals and their families.

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