Please note this case study is not based on real life events and is intended to show how a SIPP can be used in a specific scenario.
Before such a transaction is entered into we would recommend that advice is taken from a suitably qualified Independent Financial Adviser.
Paul has an existing pension invested with a large ‘do it yourself’ SIPP provider.
The pension is currently worth approximately £250,000, although the value has fluctuated somewhat over the past few months as share prices have been rather volatile. Paul now wants to reduce risk in the years leading up to his retirement in late 2015, when he has already decided he wants to buy an Annuity.
Paul contacted his existing provider to find out how they could help him meet his objectives, however they only offered Deposit / Cash funds or a very limited range of fixed term cash deposits.
Paul is unhappy with both options he wants deposit accounts and not a fund, which has annual management charges, meaning that the performance has been extremely poor, only just coming the charge, over recent years. He is also unhappy that is existing SIPP provider won’t allow him access to any SIPP deposit account, especially when he knows there are over 100 to choose from.
Having seen the range of SIPP deposit accounts on the Investment Sense website Paul calls Investment Sense and asks for some advice.
After calling the Investment Sense office Paul is put through to an Independent Financial Adviser, Sarah Bray, who arranges to meet Paul later that week to discuss his situation in more detail.
When they meet Paul explains that he is nervous of stockmarket volatility so close to retirement and wants no risk whatsoever with the capital that he has built up in his pension. Paul also explains his frustration with regard to his existing SIPP provider and that he is looking to utilise a range of SIPP deposit accounts between now and 2015 when he wants to buy an Annuity.
Sarah listens and explains to Paul that whilst he might want to avoid stockmarket investments, using only ‘sippable’ deposit accounts will leave him open to losing money in ‘real terms’ if the interest he receives is less than inflation. Paul is happy with this as he feels that preserving his capital is of paramount importance.
Having established that a range of ‘sippable’ deposit accounts is the right investment solution for Paul, Sarah moves on to discuss which SIPP is the right choice for Paul. It’s clear that his existing SIPP provider cannot accommodate Paul’s needs and that a transfer will be needed.
At the end of the meeting Sarah agrees to investigate the exit charges Paul will have to pay his existing SIPP provider and also to research the SIPP market to find an alternative. Sarah also explains that she will charge Paul a one off fee, based on the number of hours needed for this piece of work, which Paul agrees to pay.
Paul and Sarah agree to meet in a few days time when Sarah will be able to deliver her recommendation.
When they next meet Sarah asks Paul whether his intentions have changed, they haven’t, so she proceeds to deliver her advice. Sarah explains to Paul that the transfer out fee from his existing provider is £100, which Paul is happy to accept. She then goes on to explain that they have two decisions to make, firstly which SIPP provider to use and secondly which SIPP deposit accounts to open.
Turning to the SIPP first, Sarah recommends a provider who charges a flat annual fee and does not make an additional charge for each SIPP deposit account which needs to be opened. Sarah also explains the initial charge made by the new SIPP provider and shows Paul a detailed comparison of charges between the existing SIPP and the proposed replacement.
The conversation then turns to which SIPP deposit accounts to choose.
Paul is happy to tie up his pension savings for three years, as he definitely will not be retiring until 2015 and the interest rates are better on longer term fixed rates. Sarah explains that he will need to leave sufficient money in the SIPP current account to pay fees for three years, but then that the balance can be invested.
Paul is happy with this and ask which deposit accounts Sarah is recommending.
Sarah spends some time discussing with Paul the different compensation schemes that are applicable to the various SIPP deposit accounts; after discussing this for some time it is agreed to only use accounts which are covered by the UK Financial Services Compensation Scheme (FSCS).
Using the Investment Sense best buy table for SIPP deposit accounts Sarah recommends three accounts for Paul which will mean the balance in each is below the £85,000 limit of the FSCS.
Paul is happy with the recommendation and decides to proceed with the paperwork, which Sarah has already prepared.
Over the next couple of weeks the transfer from the existing SIPP to the new SIPP is completed and the new deposit accounts opened. Paperwork confirming the details of the advice as well as policy documents for the new SIPP are sent to Paul for his safekeeping.
Despite the fact that Paul had to pay an exit charge from his existing SIPP provider as well as a set up fee for the new SIPP he is happy as he now has the deposit account investments he wanted and can relax until 2015, when he will retire.
The new solution also guarantees that Paul’s pension cannot fall in value, which was his main concern, whilst accruing some interest between now and retirement.
If you would like to learn more about how SIPP deposit accounts can work for you, or SIPPs in general, then contact one of our team of highly qualified and knowledgeable advisers on 0115 933 8433, or by emailing firstname.lastname@example.org.