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Ever wondered what your UK frozen pension might be doing? You may have just the one or accumulated a few depending on the number of employers you have been with. Company pension schemes are so frequently overlooked because you cannot get your hands on the money for so many years that you tend to forget all about it. Particularly in the GCC, I have met employees who may have worked on a foreign assignment in UK or Europe who were enrolled into the company pension scheme but have failed to follow up on these benefits. However, forget them at your peril since the number of corporate schemes which have recently closed leaving many out of pocket is alarming. Companies like BT, Tesco, Astra Zeneca and Barclays have all closed their final salary schemes because they are just too expensive to maintain. Moreover, companies that have got in to financial trouble have all but decimated funds that should have been for the retirement benefit of their employees. So, if we have your attention, perhaps you should not leave your pension languishing in the UK and do something to protect your future retirement income. This is where Sipps (self-invested personal pensions) could come to your rescue. If you take an interest in investment and are wondering how to secure your finances will be in retirement then a 'Sipp' might be just what you are looking for. Sipps are essentially personal pensions with extra-added investment flexibility. They are rapidly growing in popularity as more and more investors seek to take control of their retirement savings at a time when companies appear unable, or unwilling, to run pension schemes in the way they used to. Planning retirement finances has always been a complex affair but in recent years the controversy over companies closing down pension schemes and the near collapse of Equitable Life have made it look dangerous as well. A recent article in the Financial Mail relates the story of Allied Steel & Wire in which one employee is likely to receive only a fifth of his expected retirement income. Pickets at Whitehall and demonstrations in France - this is not just a UK phenomenon. The ongoing stock market crash and the baffling amount of rules and red tape around pensions only makes matters worse. It is no surprise then the Sipps market is growing at between 30% and 40% a year and that £18 billion is currently held in the schemes already. Self-invested personal pension plans were launched by the Inland Revenue in 1989 to give investors freedom to control the assets held in their pension pot. Until that time people had relatively little choice over what went on in their pension scheme, whether they took out a personal pension of their own from an insurer or relied on their employer's scheme. Sipps represented something of a breakthrough as they separate the setting up of a pension scheme from the management of the assets held in it. In other words individuals are free to manage their portfolios, either on their own, or with advice from a stockbroker or financial adviser. The administrator then deals with the paper work and legal and tax issues involved with the decisions taken on the portfolio. Sipps can invest in a far wider range of assets than most company or insurance schemes would allow. Stocks and shares, both at home and overseas, authorised investment funds such as unit and investment trusts, and commercial land or property are eligible for Sipps. This is the interesting part. So many of us are at a loss with the performance of the stock market that we need this alternative. Since property has always proved to be a stable performer and even more so commercial property, this is where Sipps become exciting. You can utilize the transfer value of your frozen pension to purchase commercial property; the transfer value used as your deposit to secure a loan from a major bank to buy said property. The commercial property you are buying has a secured lease from a blue chip tenant, which covers the cost of loan. At the end of the loan, you own the property and can either choose to continue taking income (rent) or indeed sell the property. More importantly, there is no Capital Gains or Inheritance Tax! Typically corporate pension schemes will pay a 50% widows benefit on your death and thereafter the asset ultimately passes back to the Inland Revenue. All those years of your saving goes to line the pockets of greedy taxmen - it can be avoided. Bearing in mind that Sipps are a Revenue approved scheme and each one is signed off when transferred, the commercial property Sipp is an excellent alternative. Traditionally, when a pension fund is invested by an insurance company, it is invariably put into one of their managed funds. Policyholders have no control over the investment approach of this managed fund and usually only receive updates on its performance once a year. A policyholder cannot tell the insurer to switch his pension fund into cash or an emerging markets fund - no control. By contrast Sipps put policyholders in the driving seat. As I said, it is not unusual for people to gather five, six or even seven company or personal pension schemes during their working lives. A Sipp allows money in these pots to be pooled together. Rather than having lots of small pots of money invested in insurers' managed funds the policyholder has a larger sum of capital to invest where he or she wants. Similarly, Sipps investors can pool their assets to purchase larger commercial properties, which can be arranged through the use of Trustees and a pseudo pre-nuptial arrangement. Another interesting incentive for a Sipp too is the ability to alter the retirement date previously set by your original pension. Everyone wants to retire early nowadays and if your planning and the structure of your Sipp allows this; then why not. Obviously with any kind of financial planning it is important to seek independent advice and the merits of each individuals circumstance should be taken in to consideration. Globaleye provides a holistic financial planning approach and can advise from ascertaining the transfer value of your frozen pension and close liaison with relevant Trustees. Sipps - do not leave your pension planning to chance and get your dormant assets working for you. Dig out our old employers documentation, find your pension statements and perhaps you could be buying a County Council office block in Brighton before you know it!
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