Self-Invested Personal Pensions (SIPPs) are mainly used by savers and investors who want more flexibility than is offered by more traditional pension options.
We’ve previously written about how to choose the right SIPP. But how do you know, years after you have made that decision, whether your SIPP provider is still right for you?
Over the past few years the SIPP market has been through a period of considerable change. New rules, imposed by the regulator, the curse of toxic assets and a series of high profile mergers and acquisitions have all impacted directly on SIPP holders. These changes might mean the SIPP you previously chose is no longer the right option.
Here are six signs that now might be the right time to review your choice of SIPP provider.
#1: Charges increasing
An increase in SIPP fees will erode the value of your pension; the more you pay, the smaller your pension pot. Unless accompanied by additional value, for example an improved service, an increase in fees is almost always unwelcome.
There could be any number of reasons why a SIPP provider may decide to increase their fees. We will explain some of these later in this article. But, it should be the trigger for a review of alternative options, to compare the fees you are paying, with those of other providers.
Of course, when making such a comparison, the following must be considered:
- Exit charges, payable to your current SIPP provider
- Set-up or establishment fees, payable to the new SIPP provider
#2: A takeover
We’ve seen an increased number of mergers and acquisitions in ‘SIPP world’ over the past few years.
These generally mean your SIPP is moved to the acquiring provider, which, over time, could mean charges are changed (not always increased, but that is often the case), different levels of service and a change to the type of assets you are allowed to invest in.
If your SIPP provider is acquired or merged, the change may be for the better. But, it should trigger a period where you monitor the new provider and compare alternative options. If you decide to transfer to an alternative, we would recommend approaching your existing provider to query exit fees, as some will offer discounts for a period of time after their purchase, to allow dissatisfied investors to leave.
#3: Deposit account restrictions
The Financial Conduct Authority (FCA) has introduced new rules aimed at improving the financial stability of SIPP providers. All very laudable, but, the rule of unintended consequences has seen many SIPP savers left with fewer options than was previously the case.
Some people choose to hold some, or even all of their capital in deposit accounts. The range of deposit accounts which accept applications from SIPPs is relatively small, as our Best Buy table for SIPP deposit accounts shows.
However, the FCA’s new rules means that some providers have changed their policy and now refuse to allow SIPP savers to open longer term fixed rate deposit accounts, which don’t allow early access, in their SIPP. Further reducing an already limited choice.
This has left some SIPP savers, with large pension pots, facing a tough choice: use a smaller number of accounts and breach the Financial Services Compensation Scheme (FSCS) limits, or move to a SIPP provider who will allow full access to all ‘SIPPable’ deposit accounts.
#4: Service levels falling
As SIPP providers look for ways to improve their profitability, and comply with the FCA’s new Capital Adequacy rules some have decided to cut costs. This often means reducing staffing levels, which can then impact on service standards.
Only you will know if you are happy with the service offered by your current SIPP provider. But if you are unhappy, this could again be a trigger for considering alternative providers.
#5: Toxic assets uncovered
Some SIPP providers have allowed members to make unwise investments in the past. Often into unregulated or overseas assets, often property, but potentially into crops, commodities, forestry, even car parks and burial plots. In many cases, these toxic investments are now coming home to roost.
That might mean the SIPP provider is unable to continue to trade or has its permissions withdrawn by the FCA. Such a situation could lead to a rise in fees, a reduction in service standards as staff are cut, an acquisition by another provider or complete closure.
Learning that your SIPP provider has taken on significant volumes of toxic assets is often a trigger for considering a move away. Unfortunately finding that information before it’s too late is often hard, if not impossible.
#6: Concerns over financial stability
A SIPP provider in financial difficulties isn’t a happy place to be.
It can lead to increased fees, as the provider tries to prop up their profits, a takeover, as the SIPP provider admits defeat, or, in the absolute worst case, a closure, which again usually leads to a takeover.
If you can, we suggest carrying out regular checks on your SIPP provider’s finances. How profitable are they? How strong is their balance sheet? If you uncover things that concern you, that might be a trigger to start looking elsewhere.
Is the grass greener?
These are all factors potentially pushing you out of your current SIPP provider, there are of course many reasons that may actively pull you to an alternative. These could include:
- More competitive fees
- Better value for money (however you choose to define that)
- Improved service levels
- Online functionality; not all SIPP providers will allow you to see everything you want to online, relying on more traditional paper statements
- If you are thinking about moving, you need to factor in all the above considerations before you do. There’s no point jumping from the frying pan into the fire.
So, look before you leap, take time to consider your options, carefully compare the costs (including exit and entry fees) and look at factors which are often missed, such as financial stability.
Of course, we are here to help too. We spend much of our time advising investors on which is the right SIPP provider for them. If you would like us to do the same for you, please get in touch by calling us on 0115 933 8433.