Sipp it and see what a difference one plan makes

Sipp it and see what a difference one plan makes

Have you worked for a number of different employers and, along the way, collected a ragbag of pension plans? Someone in their late 30s or 40s might have been in half a dozen or more plans - personal pensions, stakeholders, additional voluntary contributions and other benefits from previous jobs, or possibly from periods of self employment.

What should you do about them? For most people, the prospect of bringing together the paperwork alone can be headache-inducing.

It is relatively easy to transfer some, or all, of your old pensions into the Sipp - although leave behind any "final salary"-based scheme at your former employer.

You can pay new contributions into your Sipp plan - picking up tax relief on the way in. Higher rate taxpayers receive £1.67 worth of investment for every £1 they put in; it's £1.28 for those on the basic tax rate. And when, later on, you decide to stop work or downshift, you can use a Sipp more flexibly than other pensions.

Since pensions were simplified in April 2006, Sipp take-up has soared.

Why it makes sense to move your money

Left in an old employer's "defined contribution" or (worse) "group personal pension" scheme, your money is at risk from high charges and poor performance.

Many were set up in the 1980s and 1990s with very high annual management charges, and some will be invested in "zombie" closed pension funds where the money is suffering from dreadful.....continued below

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returns.

Sipps can be opened from as little as £50 a month or a £1,000 lump sum. The fees for the Sipp itself can be zero; what you are charged on is the fee attaching to whatever investment (eg: 1.5% a year on a unit trust) you put into the Sipp. A big advantage is that you can see all your pension money in one place, with many allowing you instant on-line access to valuations.

Explain the "self-invested" bit

Self-investment sounds as though you have to be a financial guru. But you don't need to be Warren Buffet. In practice, Sipps can give you freedom to choose from a wide choice of strategies.

You could buy a basic fund, then sit back and do nothing until you retire. You could select from a mix of packaged pension company investments and some individual shares.

Or you could become a day trader, moving in and out of some of the most sophisticated financial instruments on the market including hedge funds and exchange-traded funds.

And some Sipps let you invest in commercial property such as shops, offices and hotels, as well. Residential property is the only really off-limit mainstream investment.

You can also invest in cash funds such as money market deposits - safe homes for your fund as you approach your retirement date. Alternatively, if you want to pay, you can farm out all the investment decisions to an expert.

It promises no fees other than annual management charges on the 1,000 plus funds from some 55 management companies it offers. So you could invest in anything from American bonds to South African mines. Its lowest cost fund is Fidelity MoneyBuilder UK Index Fund at just 0.3% a year. Investors need to find at least £300 a month or £3,000 a year or a £10,000 lump sum.