How to build your own ‘pot for life’ pension with a SIPP

You don’t need to wait for ‘pot to life’ rules to take control of your retirement fund. Here's how to do it now.

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New ‘pot for life’ pension reforms could give workers more freedom over their retirement pots but there are other ways to have more control.

Chancellor Jeremy Hunt used his Autumn Statement last week to unveil a consultation on letting employees choose their own workplace pension scheme that follows them as they move up the career ladder and change jobs.

Known as a ‘pot for life’ or lifetime provider model, the idea is that the employee rather than their boss chooses the pension scheme that contributions go into.

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This gives savers more freedom over how their pension is invested and makes it easier to keep track of where your money is rather than being left with a variety of pots each time you get a new job.

But many of these perks already exist if you combine old workplace pensions into a private pension or a self-invested personal pension (SIPP.)

This can be setup either through a financial adviser or with a DIY investing platform.

Many savers are already transferring old workplace schemes into SIPPS.

For example, DIY investment platform Bestinvest says it has seen its tally of SIPP accounts more than double in 2023 against 2022, while Hargreaves Lansdown has also experienced a rise.

PensionBee, which lets users combine and manage their retirement savings, says it has received just under half a million transfers since launch in 2016, while interactive investor says four of its five most-transferred pensions over the past year are from traditional life and pension providers.

“The new lifetime pension proposals could be a game changer for the UK pension system, but changes could take years to implement with many practical details to iron out,”

Alice Guy, head of pensions and savings say it could take years for the lifetime provider model to get started but savers don’t need to wait.

“Thousands of pension savers are already taking action to get interactive with their pension, consolidating their workplace and private pensions, and potentially saving thousands in pension fees in the process.”

Here is what to consider when selecting a SIPP.

Watch out for fund and platform fees

Investment platforms will charge you for holding your portfolio and there will also be fund and trading costs.

Some will charge a percentage fee based on the value of your holdings while others will charge flat fees, which may be better if you have a larger pot.

You should also check trading costs though as these differ among platforms so if you plan to rebalance your portfolio regularly, it may be worth opting for a provider where there are low or zero fees for buying and selling funds and shares.

“Consider the annual ongoing costs for any funds you invest in and the exit fee, if there is one, if you plan to move your pension to a different provider,” says Alice Haine, personal finance analyst at Bestinvest.

“There can also be ad hoc costs such as income drawdown charges with some providers, so check those too. When analysing older plans, you may find them pretty expensive, which is why scooping them together into one pot can be more cost-effective.”

Get paid to switch

Platforms may offer cashback deals to move your pension or open a SIPP and there may even be rewards for referring a friend.

For example, Hargreaves Lansdown is currently offering between £100 to £3,500 cashback when you transfer pensions worth £10,000 or more, while interactive investor is offering £200 cashback if you open a SIPP.

Investment choice

Not all investment platforms are the same and may have a different range of funds and shares.

Check if a platform's fund range reflects your investment strategy such as if you want sustainable or ESG products.

“Look for any added extras a platform offers, such as the option to invest in ready-made portfolios - off-the-shelf fully-managed investment portfolios where investment experts do the hard work for you by building a diversified portfolio of investments at a relatively low cost that is tailored to different risk levels,” adds Haine.

 

Investment tools

Providers may offer different levels of support such as research tools and best buy fund lists, which may be helpful depending how experienced you are and how much help you need.

Some may even offer access to financial advisers or portfolio health checks.

“Those looking for their first SIPP should consider whether the range of investment choice suits their needs, the help provided choosing investments, the service including access to manage a pension through app, website and telephone support, plus access to wider investment accounts such as ISA, and cost,” says Clare Stinton, head of workplace savings at Hargreaves Lansdown.

Becky O’Connor, director of public affairs at PensionBee, suggests looking at recommendations, reviews and industry ratings.

Investment platform ratings can be found through websites such as Defaqto and Boring Money.

“If you value good customer service and being able to speak to someone easily about your pension, you might prefer a personal pension provider that scores highly in reviews and independent ratings for good service,” adds O’Connor.

“If digital accessibility is important for you, for example, you want to be able to log in to your pension using an app rather than having to log in online, then pick a provider that is rated highly for its app functionality.

“Having access to information and guides might be really important to you to help you remain feeling in control of your pension, in which case, providers that offer a lot of helpful and relevant content could be best.

Should you transfer your pension?

Transferring your pension won’t be right for everyone, especially if there are certain benefits in your existing scheme.

“Older pensions taken out before April 2006 include an option to take more than 25% as a tax-free cash lump sum,” adds Guy.

“Other older plans can come with guaranteed annuity rates (GARs) that are higher than those currently available on the annuity market. So, there’s some weighing up to do.”

Haine adds that you should also check if your employer would be happy to contribute to a SIPP.

Marc Shoffman

Marc Shoffman is an award-winning freelance journalist specialising in business, personal finance and property. His work has appeared in print and online publications ranging from FT Business to The Times, Mail on Sunday and The i newspaper. He also co-presents the In For A Penny financial planning podcast.