RP case studies: Using SIPP consolidation to bring pension freedom

People take out SIPPs for a variety of reasons, writes Elaine Turtle. Here she shares a case study which shows how the product's versatility can help clients access funds to help facilitate their chosen lifestyle 

A question we are sometimes asked is why does someone need a self-invested personal pension (SIPP), the most obvious answer these days is usually to purchase a commercial property, but actually most of our new SIPPs are a consolidation of many pensions in order to take benefits or to do this a few years before benefits are required. We had a recent case that is pretty typical.

Dan Kirkwood was approaching 63, from age 55 he had been working as a consultant engineer taking on work that he felt he would be interested in. Over the course of his working life Dan had worked for four different employers. This has made his pension savings complex but this is becoming the norm now as it is very rare to just have one pension.

His first employer and the one he had worked for the longest had provided a defined benefits scheme for all staff. This gave Dan sufficient income to live on.

For his other three roles he had accumulated some defined contribution schemes and since age 55 he had paid into a personal pension scheme as when he had taken on consultancy work.

Dan met up with his financial adviser for one of their regular meetings and raised with him that he felt he might want to access funds from his other pensions. This was because he now felt he would not be taking on as much consultancy work over the next few years as he wanted to work lesser hours, his first grandchild was due and he and his wife wanted to be able to spend time with their grandchild and help with childcare. His defined benefit scheme would start until he was 65, so at this point, that wasn’t an option.


His adviser explained to him that the best option would be to transfer his defined contribution pension plans into a SIPP. This would put all his pensions into one plan and he would be able to take income from this plan as and when he wanted. The SIPP would provide him with the full pension freedom benefits – now and when he dies.

Dan could take his tax-free cash over a period of years if he so wished. He could do this to supplement his income and there would be no tax to pay as it was tax-free. His adviser explained that he could crystallise a small amount of his tax-free cash each year and this could be paid monthly to him. Each year he could change the amount he needed and when his defined benefit scheme starts to pay him his pension, he could stop taking funds from his SIPP.

He could also take lump sums of tax-free cash (if funds were still left) as and when required, perhaps for a holiday and the income from his SIPP, which would be taxable along with his defined benefit pension, switching this income on and off to suit his income requirements. Dan thought this sounded a good idea and asked his adviser how this would be put in place.

His adviser explained that there was an application form to complete to set up his SIPP.

The SIPP provider would deal with transferring his existing schemes to the SIPP and the funds would come into the SIPP bank account. His adviser had a fund manager that he used and the funds would be sent over to the fund manager for them to manage the funds.

The adviser also explained it usually took around two to three weeks for the SIPP to be set up and all the funds transferred into the SIPP and over to the fund manager.

When Dan wanted to take some of his tax-free cash there would be paperwork for him and his adviser to complete and send to the SIPP provider and they would then prepare the calculation, liaise with the fund manager so that the cash is transferred to the SIPP and would then make the payment.

If Dan wanted his slice of tax-free cash paid monthly again this can be done, he would crystallise a slice and would take that amount over the year.

His adviser said he would have to contact his existing schemes to complete a review and provide a recommendation for the SIPP. Dan said he looked forward to receiving this and starting the paperwork so he would be in a position to take funds when required.

Elaine Turtle is director at DP Pensions