Can I move my personal pension into a SIPP? What one reader didn't know

Five minutes a week that makes you smarter and calmer about your own money — plus a look at what I’m actually doing with mine…

I spoke to a reader last week. She’s read everything I’ve ever written. Her ISAs are in cheap trackers, she knows what she pays, she knows what she owns.

She also has a personal pension with Scottish Widows. It made 13% last year, which she thought was good. She had no idea she could move it and do better.

That stopped me. She had read every argument I’ve made about ISAs and acted on all of them. Nobody had told her the same thing applies to a pension. I wonder how many of you are in the same spot.

So this week’s letter is what I told her: yes, your pension can leave. It can go into the same cheap tracker your ISA is in, for the same reasons. Further down is what staying put has been costing her, and what to check before you move yours.

S&P 500: 7,677. Last week it fell half a per cent, its second weekly fall in a row. The equal-weight S&P 500, where every company counts the same, rose 1.1%. The Russell 2000, America’s small companies, rose 2%. All three edged up on Monday.

So the index fell but the average company in it rose. This is what I positioned our portfolios for a few months ago. A little later than planned, and one week doesn’t make a trend, but this is what it looks like when it starts.

What happened

America’s tech-heavy Nasdaq had its worst day since June on Thursday, down 2.9%, after a week of questions about what all this AI building is going to cost and who pays for it. Oil went back over $100 a barrel after Houthi attacks on Saudi Arabia. And the US government’s ten-year borrowing rate touched 5%.

What I think it means

The AI wobble doesn’t worry me. If you own an S&P 500 tracker you own the companies spending the money and the companies selling them the kit, so you don’t have to pick a winner.

Oil is the one to watch. At over $100 it feeds straight into inflation, and inflation is why the Fed is now talking about putting rates up rather than down. Dearer money hurts the most for companies priced on profits a long way in the future (which describes most of the giants), and the least for the ordinary companies making a profit today.

I’ve changed nothing this week. The portfolio was set up for this months ago, and the only job now is to leave it alone.

What’s coming up

Tomorrow is a big day: the UK Budget at lunchtime and the Fed’s interest rate decision in the evening. The Fed is expected to hold for now, but the likely direction is up, not down: markets put the odds of a rise in December at over 70%. And the US midterm elections are a week today, on 3 November.

A pension is like an ISA but with different tax rules, and your money is locked up until you’re 55. Your money inside it isn’t stuck in whatever fund the provider put it in though, and you aren’t stuck with the provider either.

A SIPP, a self-invested personal pension, is just a pension where you choose what’s in it. You open one with a broker (I use Interactive Investor), ask them to transfer the old pension across, and a couple of weeks later the money arrives as cash. Then you buy the same cheap S&P 500 tracker you’d buy in your ISA.

(Nobody at Scottish Widows is going to ring you and suggest you do this…)

So what did her 13% cost her? Over one year, not that much. Scottish Widows’ main pension funds made between 12% and 19% in the year to the end of August, and a cheap S&P 500 tracker made about 17%. Her fund is at the bottom of that range because it holds a lot of bonds, and bonds have made far less than shares.

Over five years the gap is much bigger. Scottish Widows’ biggest pension fund, the one most of its workplace savers are in by default, made 45% over the five years to August. The tracker made about 90%.

On a £50,000 pension that’s £72K against £95K: a £23,000 gap in five years.

Some of that is the mix, because bonds and European shares have done worse than America. Some of it is the charge. The Scottish Widows fund lists an annual charge of 1%. The tracker costs 0.07%.

On a £100,000 pension growing at the market’s long-run 10% a year, the difference between paying 1% and paying 0.07% over twenty years is about £104,000.

That is more than the pension you started with!

Before you move anything, check this. First, is it a final salary pension, the kind that promises you a set income for life? Leave it alone; those are gold, and above £30,000 you legally need a regulated adviser to move one anyway.

Second, is it the pension your current employer pays into? Leave that running too, and move the old ones from previous jobs.

Third, ask the provider two questions: are there exit charges, and does the plan carry any guarantees, such as a guaranteed annuity rate or tax-free cash above the usual 25%? If the answer to either is yes, think before you move.

If none of that applies, and for most old personal pensions it doesn’t, you can start the transfer this week.

This reader was paying a pension company. Many of you are paying a financial adviser, and wondering whether you should be…

If that’s you, I do an hour on Zoom for exactly that. We go through your last statement together and find everything you’re paying, and what it’s costing your future wealth.

Then I show you how I run my own money and why it’s simpler than anyone in the industry wants you to believe. By the end you’ll know whether leaving is right for you, and if it is, what to do first.

If it isn’t, you’ll know that too and can stop worrying about it.

It’s £250, one-off, which is less than a month’s adviser fees on a £250,000 pot. There’s nothing to buy at the end of it, and if you finish the hour still not knowing what to do, I’ll give you the £250 back.

If you want one, click here to email me and I’ll send you the details.

If you joined this month: I’m a UK investor who fired his financial adviser and has run his own ISAs and SIPP ever since, doing much better than they ever did. The case for starting is simple. A low-cost S&P 500 tracker, bought regularly and left alone, will do better than most financial advisers. To learn more, start here.

Every position I hold, and why, is on my portfolio page.

See you next week.

Tim

I am not a financial adviser. Nothing here is personal financial advice. Please do your own research before making any investment decisions.