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  • FIRST POST
    plonkee
    Stakeholder or SIPP wrapper for index fund
    • #1
    • 15th Mar 07, 5:48 PM
    Stakeholder or SIPP wrapper for index fund 15th Mar 07 at 5:48 PM
    I apologise if this has been asked before.

    I have stakeholder pension with Virgin Money, invested 100% in a FTSE All Share tracker. This stakeholder has an annual charge of 1%.

    I could transfer this money to a Hargreave Landsdown SIPP invested 100% in a FTSE All Share tracker. THe SIPP would have no annual charge and the fund would have a .25% charge.

    I am very happy with an index tracking fund and plan to essentially stick to index funds for my pension investments for the next 20 years.

    I will be contributing additional payments monthly to the pension.

    Is there any reason I'm missing why I should stick with the stakeholder instead of switching to the SIPP?
Page 1
    • dunstonh
    • By dunstonh 15th Mar 07, 6:13 PM
    • 88,340 Posts
    • 53,556 Thanks
    dunstonh
    • #2
    • 15th Mar 07, 6:13 PM
    • #2
    • 15th Mar 07, 6:13 PM
    I could transfer this money to a Hargreave Landsdown SIPP invested 100% in a FTSE All Share tracker. THe SIPP would have no annual charge and the fund would have a .25% charge.
    Are you sure? It is unlikely that the tracker pays any trail commission and HL charge when there is no trail.

    For all other funds & investments we charge 0.5% + VAT up to a maximum of £200 + VAT per annum.

    I am very happy with an index tracking fund and plan to essentially stick to index funds for my pension investments for the next 20 years.
    If you are really looking for poor performance like that then you ought to be looking at a stakeholder pension.

    Is there any reason I'm missing why I should stick with the stakeholder instead of switching to the SIPP?
    Stakeholder would be cheaper.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
  • EdInvestor
    • #3
    • 15th Mar 07, 6:27 PM
    • #3
    • 15th Mar 07, 6:27 PM
    IMHO trackers are not a good choice for pension investments as the charges on pensions usually negate the key selling ppoint for trackers - their low charges.They are better used in ISAs.

    The Selftrade deal involving exchange traded funds - trackers in the form of shares - is particularly good value, with no dealing fees or stamp duty on purchases inside the ISA .The underlying fee on ETFs is usually about 0.4% and they pay the full dividends, which most unit trust and especially pension fund trackers normally don't.

    www.selftrade.co.uk
  • plonkee
    • #4
    • 15th Mar 07, 6:30 PM
    • #4
    • 15th Mar 07, 6:30 PM
    Thanks for the response.

    Regarding the fees:
    Are you sure? It is unlikely that the tracker pays any trail commission and HL charge when there is no trail.
    The fund is the HSBC FTSE All Share Index Fund . It does not say that it is one of the funds that they charge an extra 0.5% plus VAT on, therefore I am assuming that they do not.

    I'll repeat again that I am happy with index funds. I believe that they suit my investing profile and they are what I want to invest in. (I would like, over the long term to get average performance.) I simply want the cheapest one.

    Stakeholder would be cheaper.
    In what way? This is the essence of the question I'm trying to ask. I imagined that the stakeholder should be cheaper but with no set up or management fees for the SIPP and only a 0.25% amc on the fund, it appears not to be. What if anything am I missing?
    thoughts on personal finance @ plonkee.com
  • plonkee
    • #5
    • 15th Mar 07, 6:38 PM
    • #5
    • 15th Mar 07, 6:38 PM
    IMHO trackers are not a good choice for pension investments as the charges on pensions usually negate the key selling ppoint for trackers - their low charges.They are better used in ISAs.
    I'm just not sure that there are other fees. What should I be looking for?
    thoughts on personal finance @ plonkee.com
  • EdInvestor
    • #6
    • 15th Mar 07, 6:41 PM
    • #6
    • 15th Mar 07, 6:41 PM
    I'm just not sure that there are other fees. What should I be looking for?
    Are they paying you the dividend?The market yield is about 3%.Many pension funds (and not a few unit trusts) just confiscate this money - and charge you a 1% AMC as well.

    Look at the column marked "yield" on
    this list of UK unit trust trackers and you'll see the variation.

    Dividends make up half the real returns long term of stockmarket investing, so if you're not getting your divis, it will affect the final result big time.
    Last edited by EdInvestor; 15-03-2007 at 6:49 PM.
    • dunstonh
    • By dunstonh 15th Mar 07, 6:52 PM
    • 88,340 Posts
    • 53,556 Thanks
    dunstonh
    • #7
    • 15th Mar 07, 6:52 PM
    • #7
    • 15th Mar 07, 6:52 PM
    I'll repeat again that I am happy with index funds. I believe that they suit my investing profile and they are what I want to invest in. (I would like, over the long term to get average performance.) I simply want the cheapest one.
    The FTSE all share by definition cannot be better than average and havent performed above sector average in the last 18 years. You are destined to below average performance over the long term by using single fund investing.

    I took a client out of HSBC FTSE all share tracker just over 6 years ago using a spread of 11 funds and his portfolio was up 58.35% on last years review. The HSBC fund was up 11.16% in the exact same period. Not all the funds performed as we wanted but most did. The gains though werent in the funds themselves but the sector allocation and downside protection that existed when the markets began to crash not long after we changed the portfolio.

    Even default funds from the insurers, such as Norwich Unions Balanced Managed fund have outperformed it. Mainly of course due to the diversification and downside protection. Any regular here knows we arent fans of bog standard managed funds but given a choice, I would take the balanced managed fund any day. It's the lesser of two evils.

    You are looking at probably the single most expensive product in your life and you want to stick it all in one place and not a very good place at that.

    In what way? This is the essence of the question I'm trying to ask. I imagined that the stakeholder should be cheaper but with no set up or management fees for the SIPP and only a 0.25% amc on the fund, it appears not to be. What if anything am I missing?
    I am assuming that HL dont get paid 0.5% trail on a fund that charges 0.25%. Therefore they will levy the charge of 0.5% plus VAT (strange that VAT is added as it isnt on other platforms with explicit charges).
    Last edited by dunstonh; 15-03-2007 at 6:54 PM.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
  • jamesd
    • #8
    • 16th Mar 07, 8:37 AM
    • #8
    • 16th Mar 07, 8:37 AM
    plonkee, have you considered trackers for other markets, not solely the FTSE All Share? Sticking with trackers you could usefully add one for global growth if you wanted just two.

    Or maybe split UK into large, small and mid-cap with those FTSE indexes and and add say four different regional market trackers - US, Europe, Asia-Pacific, Emerging Markets. Rebalance the percentage split once a year and you'd be in trackers and should see better long-term growth than the FTSE All Share. Closer to world growth average than the likely to be lower UK growth average.

    The rebalancing ends up taking the money from those which have grown most and spreading it around the rest, protecting it somewhat, so you gain from whichever one is doing best each year and get some protection from falls in each one alone.
  • plonkee
    • #9
    • 16th Mar 07, 10:06 AM
    • #9
    • 16th Mar 07, 10:06 AM
    I understand that a FTSE All Share tracker fund will perform slightly worse than the actual FTSE All Share Index due to fees and tracking error. This is the best type of fund for me because I understand how it works and am happy that it is likely to increase in value over the long term. Additionally, I would be very unhappy / nervous if I picked a managed fund / portfolio that performed worse than this.

    I have considered using other trackers in addition (particularly international), and will probably eventually move to this, but I have a small pot at the moment and so will be sticking to the FTSE All Share for now.

    I'm not sure that my original question is clear though. I've defined the basic strategy I want to pursue. Given that, the SIPP (with fees of 0.25%) seems obviously cheaper than the stakeholder (with fees of 1%). Am I wrong, and if so why?

    I will look at the yield btw - thanks.
    thoughts on personal finance @ plonkee.com
  • EdInvestor
    http://www.h-l.co.uk/fund_research/security_details/sedol/0514170.hl

    This one seems to have the standard L&G charge of 0.5% and pay a 2.8% yield. This would be the same as you get outside, so the SIPP would be cheaper than a conventional pension @1%.

    It is very hard to pin down pension companies on the yield issue, and as you can see, it makes a major difference when trackers are involved.
    • dunstonh
    • By dunstonh 16th Mar 07, 12:02 PM
    • 88,340 Posts
    • 53,556 Thanks
    dunstonh
    pension funds are accumulation units and the yield is reinvested and built into the unit price. It isn't lost.

    L&G stakeholder has a range of trackers on their stakeholder and I was looking at a case earlier in the week and it was 0.8% amc on full commission let alone discounted. That would drop to around 0.4-0.5% with no initial commission.

    I'm not sure that my original question is clear though. I've defined the basic strategy I want to pursue. Given that, the SIPP (with fees of 0.25%) seems obviously cheaper than the stakeholder (with fees of 1%). Am I wrong, and if so why?
    That assumes HL dont charge you . I think they probably will as an annual management charge of 0.25% is not going to pay 0.5% trail commission to HL.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
  • plonkee
    Just to add that I had a response from HL and the only charge on the HSBC FTSE All Share index fund is 0.25%, they do not levy additional charges on that fund.

    By my calculations if you wanted a FTSE All Share Tracker in your pension fund, the cheapest way to do it is this HSBC one through the HL SIPP. I am not suggesting this is a solution for everyone/anyone else, but it works for me.
    thoughts on personal finance @ plonkee.com
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