Busted: The 10 most common SIPP myths

This article is intended for financial services professionals only. None of the information contained in this article should be received as advice. Pensions are a complicated area of financial planning and IPM suggests that financial advice from a suitably regulated financial adviser is sought before an individual takes any action in respect of their pension savings.

As a bespoke provider that does not offer any other services, IPM is used to talking to advisers and clients about SIPPs day in, day out. This includes specific scenarios an adviser is working on, how the IPM SIPP can benefit their clients or more general discussions on SIPPs and the industry.

We appreciate that not everyone deals with SIPPs on a regular basis, especially at the end of the market in which IPM operates. Some of the areas we assist our advisers with include:

However, we admit that we are sometimes guilty of assuming that some of the matters around SIPPs are clear to everyone! While on occasion these assumptions can be inconsequential, other times they can be important in the advice an adviser will deliver, or in managing a client’s expectations.

Below we have listed 10 assumptions and myths we have discussed in relation to SIPPs.

Have we missed any out? Is there a SIPP-related question you would like the answer to? Get in touch with us here and we’d be happy to answer it!

1. You must live in the UK to set up a SIPP

There is no requirement that an individual must live in the UK to set up a SIPP to make a transfer of benefits.

However, the Relevant UK Individual Criteria must be satisfied if an individual wishes to pay a contribution into a SIPP and receive tax relief. You can find out more about this on page 3 of our Key Features document.

We understand some providers will not set up a SIPP where an individual resides overseas. While IPM will assess each case on its own individual merit, in general we are open to such scenarios on the basis that the client concerned is receiving the appropriate advice.

2. Other pension providers do not issue discharge forms for transfers

Like most industries, technological advancements have revolutionised how we do business in financial services.

IPM will always remain true to our ethos: to provide a personable and high level of technical support to our advisers and their clients. However, we recognise that this approach also needs to incorporate technology which will make people’s lives easier.

All of IPM’s paperwork can now be completed by electronic signature, and we continue to enhance our online offering for both advisers and clients.

Pension transfers can also be carried out online using the Origo pension transfer system. Currently, IPM does not subscribe to Origo. However, this is something we keep under regular review. As such, discharge forms are required to make transfers into IPM.

Advisers have told us that when they approach certain providers for discharge forms, they are told that they do not have them; this is because there is an assumption that everyone is now on Origo. While this is the case for some providers, more often than not discharge forms are available. They are issued once it is explained that the transfer will not be completed by Origo.

3. Tax relief on personal contributions is applied to the SIPP straightaway

The IPM SIPP is a relief at source scheme. This means that we submit a monthly reclaim to HMRC for 20% tax relief on all personal contributions made to our SIPP.

As this reclaim is submitted monthly, clients can wait longer than others to receive tax relief depending on when the contribution is made. While the time can vary, it could be between 6 to 8 weeks before the tax relief is credited to an individual’s trustee bank account.

Knowing this is important from a planning perspective, especially if liquidity is required for a specific reason such as making an investment or drawing benefits from the SIPP.

4. A minimum amount must be held in the trustee bank account.

This is a question we are asked regularly, and an assumption that is often made. However, IPM does not have a minimum amount that needs to be retained in the trustee bank account.

With that said, this will depend on the individual circumstances of each SIPP. For example, is regular income being paid to the client? Are monies required for either a property transaction or other property-related matters? These are all areas for the adviser and client to consider.

While there is no minimum balance, where monies are held in the trustee bank account, this earns interest, which is determined by the Bank of England base rate. We display the rate of interest on our website here.

5. Residential property can be bought in a SIPP

The pension tax manual (PTM) gives providers guidance as to how to run their schemes. For residential property, the PTM states:

If an investment-regulated pension scheme directly or indirectly acquires taxable property (residential property or tangible moveable property) this will create an unauthorised payments charge on the member whose arrangement acquires the asset.

As a result, it is likely that if you ask a SIPP provider to purchase a residential property, they will say “no”.

6. If a property has a residential element, it cannot be considered for a SIPP

Not necessarily.

IPM is often asked to purchase properties that have a residential element. Most of the time, we will not be able to accommodate the full building within the SIPP. However, this doesn’t necessarily mean a SIPP cannot help.

Take a shop on a high street, for example. It is not unusual for the ground floor to be the commercial unit the client wishes to purchase in a SIPP, while on the first floor and above there are flats. While IPM would not purchase the entire building, we would still consider a purchase of the leasehold title of the ground floor.

It is always worth speaking to your SIPP provider should a property have a residential element, as they may still be able to assist.

7. Rent being paid by a client’s company to occupy a property held in a SIPP counts towards the Annual Allowance for contributions

This is a common misunderstanding when a client’s company occupies the property owned by the SIPP. As tenant to the property, the company must pay rent to the pension scheme, set at market value as the tenant is connected to the SIPP.

The rent paid to the SIPP is viewed as investment yield; this is not a company contribution. Therefore, as well as paying rent from the employer, contributions at the client’s Annual Allowance can still be paid should the company have the means.

8. Transfers in-specie of properties from other SIPPs or SSASs are too complicated and not worth the hassle

Let’s not sugarcoat it. A transfer in specie of property from another SIPP or SSAS is not going to be the easiest piece of work you undertake. However, there are often reasons why a client may approach you to facilitate these:

They are receiving poor service from their current provider
High levels of fees are being charged
The current solution no longer meets the client’s requirements
A combination of all the above

Properties are viewed as long-term investments for SIPPs; you could be dealing with any one of the above for a long time.

IPM is experienced in dealing with transfers from other SIPPs and SSAS. We have one of the cost-competitive SIPP offerings in the marketplace; often the cost of transfer can be made up by the savings made in fees being paid to the current SIPP provider over several years. We can work with you to facilitate the transfer as smoothly as possible, our recent article looks more closely at how IPM can assist you with this.

9. Clients can tell IPM their tax code for income payments

When people receive income payments from their SIPP via flexi-access drawdown or UFPLS, this is subject to tax. The SIPP provider deducts this at source, through the PAYE system.

When someone first becomes entitled to income from their SIPP, typically an emergency tax code is applied. This is because the only party a SIPP provider can accept a change in tax code from is HMRC; we cannot accept this from anyone else.

The first payment from the SIPP will usually trigger HMRC to issue the provider with the correct code. Therefore, if you’ve got a client looking to take a large income payment, it may be worth drawing a smaller amount of income first, to allow the correct tax code to be issued to IPM and applied to the larger payment.

10. Benefit payments cannot be made to bank accounts outside the UK

This again comes down to the flexibility of the provider you work with.

IPM has clients all over the world and pays to bank accounts all over Europe, America, and Asia, in some instances in currencies other than GBP.

Read more here about how IPM can help your clients who live abroad and wish to receive benefits from their SIPP.

Get in touch

If you want to have a chat about the potential of SIPPs for your clients, or any other aspects of pension planning, please contact us. Email info@ipm-pensions.co.uk or call 01438 747151.