In this article from The IRS Report in September 2008, Chris Gilchrist talks about SIPPs.……

A new SIPP opportunity

Some 6 million individuals with over £100 billions locked up in old pension funds will be able to move them from October 2008, and as many a million could benefit from transferring their cash. The funds, known as "protected rights" (PR), have to be held by insurance companies under current rules but from October it will be possible to transfer them to other forms of personal pension including Self Invested Personal Pensions (SIPPs). PR funds were accumulated by people in both final salary and money purchase pension funds. The government now proposes to abolish contracting out from April 2012 for Money Purchase schemes, and at that point all the restrictive rules affecting PR plans will vanish. Until then, though, pension scheme administrators will need to keep separate track of PR, even if they are transferred to a SIPP. The main issue is that if someone with a fund including PR converts all or part of their fund into an annuity, the annuity payments from the PR portion of the fund must continue during their spouse's lifetime too. This restriction does not apply to other forms of personal pension.

Most SIPP administrators will be able to cope with this "tracking" requirement and will be able to accept PR into their schemes. So if you hold PR in insured schemes, it will certainly be worth reviewing them, and in many cases it will make sense to transfer them to a SIPP. But with large sums likely to be moved, do not be surprised if the transfer process takes many weeks to complete.

Before transferring any insured pension, check the costs. There are often penalties for transferring, which usually relate to how long the plan has to run until your retirement date. if the penalties are steep it may be worth waiting a few years until they reduce - a tactic I have had to use with one insured scheme where the penalty was originally 10% of the fund.

Within an existing insured PR plan, your cash is probably invested in a dull middle-of-the-road 'balanced' fund. When you move it, you can choose shares or funds that fit your own investment style and risk comfort zone. But by was of example, I have included a widely diversified portfolio that uses only index-tracking Exchange Traded Funds at minimal cost. It includes commercial property, energy, gold and private equity as well as bonds, and large- and small-cap shares in developed and emerging markets.

These ETFs can be bought through any online sharedealing facility inside a SIPP, usually for flat dealing costs of about £12-£15 per trade. So establishing this portfolio should cost you no more than £210, after which an annual management cost of 0.52% is less than a third of the annual costs of typical actively managed funds.

You can see all of Chris Gilchrist’s articles at www.TheIRSReport.com.

Chris is the editor of The IRS Report every month.

Call 0800 756 5437 or click here for more information.