- My employer matches contributions up to a certain level;
- My employer adds the majority of the employers National Insurance that they save into the pension; and
- The 2% employee National Insurance that I would have paid is also able to be added into the pension
Wealth Warning: Before I proceed it’s worth reinforcing that my employer pension plan is a Defined Contribution Pension and not a Defined Benefit Pension. It also provides absolutely zero additional benefits. If it was or did either of those things what I describe below may not be the right approach.
These benefits definitely outweigh the high 0.6% to 0.76% expenses I'm then paying for trackers and the lowest cost active funds (where a tracker is not available) within the Pension. That said if I could find a way to get the money in through salary sacrifice as I do today but then transfer at regular intervals into my SIPP I’d get all the salary sacrifice benefits of the company pension as well as all the low cost benefits of a DIY SIPP. This effect would be noticeable as I've been with my current employer for a large portion of my Financial Independence Retire Early (FIRE) journey meaning some 15% of my total wealth is now held within the company pension. I estimate it would reduce my total wealth annual expenses from 0.31% per annum to about 0.25%. 0.06% doesn't sound like much until you run the numbers and realise its £60 per annum if your wealth is £100,000 and £600 per annum on £1 million.
Regular readers will know I've been trying to find a way to do this for some time. I've tried two different angles:
- Get my employer to open me a new Pension policy with them salary sacrificing into that new account. The old account would then be dormant allowing a trivial SIPP transfer by simply filling out the short transfer form that is available from any SIPP provider. Unfortunately my employer wouldn't budge here as it was just too much “admin”.
- Ascertain from the insurance company who provides the Defined Contribution pension if and how this can be done. They obviously have a vested interest in being as slow and obstructive here as possible.
I am however pleased to announce that many emails, phone calls and a lot of time later I have achieved success. In case any readers are trying to do something similar the form I needed is what is called a Declaration of Claim Discharge which is a simple 2 page form which importantly includes a section called a Partial Transfer Request which enables me to check a box entitled “If you wish to move the ‘maximum amount’, please tick the box opposite”. All I have to do is complete this form and then attach it to the SIPP transfer form from my chosen SIPP provider and I'm away.
Before setting the wheels in motion I now have a final choice to make. What SIPP provder will I use?
Choice 1. This would seem to be the no brainer. I already have an AJ Bell YouInvest SIPP which on the expenses front is a percentage fee broker/platform but with a capped maximum expense. I currently have 26% of my total wealth within this SIPP wrapper and it is now at such a wealth level that I have reached the capped level of expenses. I'm also happy with the reliability of the platform and the customer service levels. I could therefore add all the pension transfer into this SIPP wrapper for no additional platform charges other than trading costs when I initially buy my chosen ETF’s/funds. So why don’t I? I just don’t like having all my eggs in one basket. As the excellent Monevator says I “assume every investment I make could leave me with nothing”. Sure all my wealth in the YouInvest SIPP should be ring-fenced, segregated and held in my name but what if it isn't... Losing 26% of my wealth would be very painful, particularly if I had been retired for many years and therefore had limited re-employment prospects. It would be even worse if I added another 15% of my wealth to the problem. So even though this is the lowest cost option it’s the option I'm unlikely to take.
Choice 2. So it looks like I need a new SIPP provider. Here I have 3 choices – a percentage fee broker/platform, a percentage fee broker/platform but with a capped maximum annual expense or a flat fee broker/platform. To screen providers I'm straight over to Monevator’s Compare the UK’s Cheapest Online Brokers. I quickly eliminate all the percentage fee brokers as my transfer pot value makes these expensive. On the flat fee side The Share Centre seems to have the lowest Platform Charges for my transfer amount at £172.80 but there is one big problem. Their dealing costs are 1% (minimum £7.50)! On a £100,000 transfer (not my real transfer amount but I am transferring a significant amount) that’s an initial additional cost of £1,000! Then at periodic intervals I’ll also be transferring more employer pension plus reinvesting dividends so will continue to get hit year after year. No thanks.
Next up we have Interactive Investor and Motley Fool Share Dealing tied with annual costs of £176. Not surprising they are tied given the Motley Fool uses the Interactive Investor platform. Their dealing costs are £10 but you do also get £20 worth of free trades per quarter. That’ll do me. So my insurance policy against somebody at YouInvest committing fraud or similar is £176 per annum. Given the downside is that my YouInvest wealth could go to £0 I think I’ll take that.
Before I pull the trigger do any readers use Interactive Investor as a SIPP platform? Would you recommend them?
As always DYOR.