SIPP Advice & Thoughts

whit_3

Hello. I've been lurking here a while. Interested to see the lively opinions generated on the topic of SIPPs. A little advice would be highly appreciated.

My employer and I have been making payments into a couple of personal pension plans for quite a while now. The plans total around £100k plus an additional £30k of protected rights. I am able to contribute £1k gross per month. I've had poor advice from successive IFAs and the performance of the pension plans have been fairly appalling, by any measures. I've done quite a lot of research and am looking at a SIPP, the Hargreaves Lansdown one specifically.

If I transfer the various pensions into the SIPP, the transfer charge equates to 1% of the value of the funds (£1.1k). I am working on the assumption that this is a fair cost balanced against a reasonable chance of improving the cost structure and performance of the funds. Is this a reasonable assumption?

Whilst I will be spending time managing the SIPP, I cannot claim to be an experienced investor. For that reason I am likely to select a range of funds in order to build a diverse portfolio. At present I am considering a selection of funds to match this asset allocation: 30% large UK cap shares (possibly via a tracker), 35% gilt-edged bonds, 15% international, 5% smaller UK shares (poss. Fidelity Spec Sits), 5% commercial property and 10% cash. I am currently 41 and anticipate retiring between 55 and 60. Is this overly cautious? Any thoughts appreciated.

I have read a lot of guidance on building a HYP. Whilst I can see the advantages as an income generator, what is the thinking on its potential as a growth strategy?

Any other general comments or advice appreciated.

Thanks in advance.

Whit

EdInvestor

Hello Whit,

Are the eixisting pensions in With profits funds?If so be sure to check for any valuable guarantees before removing them. To whom will you be paying this "transfer fee" and what does it consist of?

Your asset allocation looks a bit conservative for your age, too much in bonds especially.

This asset allocation calculator may be useful

Regarding the HYP strategy, IMHO it is excellent as both an income and growth strategy, just reinvest the dividends for the latter. Indeed in the last few years it has been able to perform as both at the same time.

dunstonh

Be careful when looking at charges on a SIPP. A SIPP is often the most expensive of the three main pension products (stakeholder, personal and self invested). The 1% would probably apply to the SIPP in this case with further charges on the funds selected. If you are not as experienced at investing and don't tend to fully utilise funds and switching, you may find a personal pension offering a large external fund range is a cheaper option. Particulary if you utilise one that has a decent internal fund range as well (usually meaning 1% AMC in total before fund discounts).

EdInvestor

No annual fee on the HL SIPP, it's the SIPP of choice for fund investors.IMHO Sippdeal is better for shares and Alliance Trust for ITs.

All cheaper than the insurance company SIPPs because there is no annual fee.

http://www.hargreaveslansdown.co.uk/sipp/

cheerfulcat

Hi, Whit,

Keeping the HL SIPP invested in funds is probably the cheapest way to go. That's what I have found, anyway. To me, HL's dealing charges are a slight disincentive to holding shares in the SIPP but if you are going the non-tinker HYP route it should work out.

I wonder about your massive allocation to gilts; bear in mind that right now gilts are far more risky than you might think. The yields are very low and there is IMHO a real danger of a correction.

EdInvestor

To me, HL's dealing charges are a slight disincentive to holding shares in the SIPP but if you are going the non-tinker HYP route it should work out.

If you are going for shares, especially with a long term buy and hold no tinker strategy, the Sippdeal SIPP (which has just reduced its charges) will be better.

www.sippdeal.co.uk


BTW the position is unclear at present on protected rights.It looks as though they will be allowed in SIPPs from April, but possibly with restricted investment options until SIPPS are regulated in 2007 ( cash and gilts only).If so, since you fancy holding some gilts, perhaps you could use the PR money for them, and then the rest of the fund can be invested elsewhere.

whit_3

Hello

Are the existing pensions in With profits funds?If so be sure to check for any valuable guarantees before removing them. To whom will you be paying this "transfer fee" and what does it consist of?

Part of the existing pensions are in With profits funds. The transfer fee is payable to the Pru, essentially the difference between the fund value and transfer value. There are valuable guarantees which will apparently be transferred externally, though the Pru say this is at their discretion. I am still attempting to unpack exactly what this means.

Your asset allocation looks a bit conservative for your age, too much in bonds especially.

Thanks. I suspected that was the case. I'll play with the calculator at the end of the link you posted.

Regarding the HYP strategy, IMHO it is excellent as both an income and growth strategy, just reinvest the dividends for the latter. Indeed in the last few years it has been able to perform as both at the same time.

The more I read of HYP the greater my interest. If I opt for this route for the major caps equity element of my portfolio and a few funds for other elements, which SIPP provider would you recommend for a combined SIPP? HL or Sippdeal?

whit_3

If you are not as experienced at investing and don't tend to fully utilise funds and switching, you may find a personal pension offering a large external fund range is a cheaper option. Particularly if you utilise one that has a decent internal fund range as well (usually meaning 1% AMC in total before fund discounts).

Thanks for the suggestion. Researching personal pensions and their fee structures appears to be much more complicated than on-line SIPPs and give me a lot less flexibility. After being a little burned by personal pension providers, IFAs and admittedly my appalling management of them, I am geared up to taking greater responsibility.

Can you elaborate on where these higher costs are manifested with providers like HL and Sippdeal?

whit_3

Keeping the HL SIPP invested in funds is probably the cheapest way to go. That's what I have found, anyway. To me, HL's dealing charges are a slight disincentive to holding shares in the SIPP but if you are going the non-tinker HYP route it should work out.

You'd advocate HL's SIPP for the HYP route?

I wonder about your massive allocation to gilts; bear in mind that right now gilts are far more risky than you might think. The yields are very low and there is IMHO a real danger of a correction.

Yes, I'm also concerned but unsure on how to provide a balance for the equity allocation. Perhaps a larger cash element is appropriate until the market becomes more sensible.

whit_3

EdInvestor wrote:

If you are going for shares, especially with a long term buy and hold no tinker strategy, the Sippdeal SIPP (which has just reduced its charges) will be better.

www.sippdeal.co.uk


BTW the position is unclear at present on protected rights.It looks as though they will be allowed in SIPPs from April, but possibly with restricted investment options until SIPPS are regulated in 2007 ( cash and gilts only).If so, since you fancy holding some gilts, perhaps you could use the PR money for them, and then the rest of the fund can be invested elsewhere.

Thanks. That's a good call. I'm planning on leaving the protected rights with the Pru pending clarification. Then I can decide on whether to transfer to a low cost stakeholder or do as you suggest.

EdInvestor

There are valuable guarantees which will apparently be transferred externally, though the Pru say this is at their discretion. I am still attempting to unpack exactly what this means.

IME any such transfer is HIGHLY UNLIKELY. So it's very important to nail down exactly what guarantees there are on which pension. DON'T disturb any pension until this issue is clear.

To replace your bond investment, you might likely to consider increasing your commercial property asset allocation.CP is low risk, similar to bonds, and accessed either via pension funds or offshore investment trusts in a SIPP/drawdown.Both types of fund are run by the big insurance companies. They are not correlated with equities risk wise and provide a yield of 5-7%.Lately capital returns have also been high though this is unlikely to last. CP is regarded as a different asset class to residential property.

The more I read of HYP the greater my interest. If I opt for this route for the major caps equity element of my portfolio and a few funds for other elements, which SIPP provider would you recommend for a combined SIPP? HL or Sippdeal?

I suggest you ask this question on the Fool SIPP board when you've got a clearer idea of exactly what you're investing in, as it's quite complicated when regular contributions are involved.There are one or two maths types over there who enjoy working out this kind of thing.;)