Contracting out of S2P via SIPP based question...

dunstonh

The fact is that IFAs aren't authorised to advise on many of the best and low cost ways of investing.

Yes they are. In fact, this thread is a good example. It was an IFA that made the OP (Goldfinger) aware that what he had was effectively charges free and the SIPP was going to cost 1.5% p.a. It was also an IFA that pointed out that a stakeholder or personal pension would be cheaper than the SIPP.

So by their nature they will tend to lead investors along a more expensive path and to pooh pooh those who seek more effective ways to get a return which are outside their competence.

Only someone with an anti-IFA bias could accuse IFAs of pushing expensive options when the are actually cheaper. You have to be that blinkered to not see the obvious.

The Self Invested Personal Pension which started out - and still is - a vehicle for non-IFA style investing (but has been adipted by some IFAs for their own purposes) thus tends to be a flashpoint.

This is despite IFAs having done the majority of SIPPs ever since they became available? The vehicle was designed for direct investing into assets. It was never designed with investment funds in mind.

This is why the FSA has taken an interest in SIPP sales and has issued a number of warnings about the suitability of SIPPs when using funds and that stakeholder and some personal pensions are cheaper.

tartanterra

I'm losing the thread here, because of some of the in-fighting!
Could someone please clarify for me:
Are stakeholders always generally cheaper than SIPP's, or is that only as far as investing in funds?

Ta.

dunstonh

Are stakeholders always generally cheaper than SIPP's, or is that only as far as investing in funds?

For the use of investment funds, a stakeholder bought on a like for like basis (e.g. advice vs advice, execution only vs execution only etc) will be cheaper than a SIPP. A personal pension could be cheaper than a stakeholder or more expensive depending on provider.

If you are investing in unit trust funds in the SIPP where the AMC is 1.5% and the stakeholder is 0.5% or the PPP is 0.4% then its clear which is the cheapest.

I'm losing the thread here, because of some of the in-fighting!

I'm afraid the bit you wanted clarification on is the bit that Ed argues. She says the stakeholder at 0.5% is more expensive than the SIPP at 1.5%

tartanterra

A further question!

From previous posts, it appears that charges on personal pensions vary far more wildly than on SIPP's or stakeholders.

Why is that?

dunstonh

From previous posts, it appears that charges on personal pensions vary far more wildly than on SIPP's or stakeholders.

Why is that?

Stakeholders have a defined charging strucure. SIPPS and personal pensions do not. This means the providers of SIPPs and PPPs can offer a variety of charging methods. Some of which can make them quite cheap, some more expensive. Some target specific consumers (either by age or amounts) and price accordingly so you could find a personal pension that has charges much lower than stakeholder for 25 year old but the same pension could be more expensive for a 50 year old.

The two main types of PPP available nowadays are 1) mono charged like a stakeholder (meaning only annual managment charge) and offer stakeholder funds at stakeholder prices but also offer external funds which tend to cost more. Allowing you to mix and match stakeholder funds and external funds.

The other is factory gate priced where the provider offers the product with no marketing charges included and its the up to the retailer (IFA, website, whoever) to add theirs on top. These will become more of a standard as we get closer to 2012 when product providers will no longer be able to set the retailer margin/commission/share. The retailer charge could be factored into the annual management charge as an increase (much like HL are doing with their 0.5% p.a. commission on their SIPP) or it could be a one off fee at the start or over a limited period of years. The latter works very well for the under 45s but expecially those in their 20s or 30s.

tartanterra

Sorry to be a pain.

Could you explain the changes you are alluding to in 2012?
If providers aren't setting the charges, who is?
I thought I was financially savvy, but I obviously need to get to grips with pensions, because I am finding this more bewildering by the minute.:o

Any good sources of reading, reference pensions, for someone about to go self employed in a years time?

dunstonh

Could you explain the changes you are alluding to in 2012?

At the moment, with most products, the providers decide how much is paid and how. This will cease with most investment products by 2012.

If providers aren't setting the charges, who is?

The retailer. That means the IFA, the website, broker, or whoever is retailing the product.

I thought I was financially savvy, but I obviously need to get to grips with pensions, because I am finding this more bewildering by the minute.:o

These changes apply to all investment products. Not just pensions.

The best way to think about pensions is the same as any other tax wrapper. If you put invesco perpetual high income in an ISA, pension, investment bond or unwrapped you still have the same fund. Its just the tax handling and method of maturity that is different.

Any good sources of reading, reference pensions, for someone about to go self employed in a years time?

I will let someone else answer that as the stuff I use is largely paid for or designed more with a technical standpoint and not consumer standpoint.

EdInvestor

tartanterra wrote: »

Are stakeholders always generally cheaper than SIPP's, or is that only as far as investing in funds?

You can't compare stakeholders with SIPPs - they are designed to do quite different things.A stakeholder is a simple, plain vanilla product.A SIPP enables a hugely more complex style of investing.Despite that, an expensive stakeholder at the top end of the charge spectrum at 1.5% will cost the same as a low-cost SIPP invested in much higher quality funds, and will be much more expensive than one which is invested directly rather than via funds. You get a lot more bang for your buck with a SIPP if you use it correctly.

[Deleted User]

It's good to read different points of view on this subject, and clearly people have them when it comes to pensions/SIPPS!

I am still interested in the HL SIPP for my protected rights "pot" only, and at least I know more now than I did when I started the thread. I feel comfortable with the level of risk I'd be taking with that amount of money; given that I have time on my side.

As far as SIPPS are concerned, you're on your own, and they definately won't be right for everyone, as dunstonh quite rightly points out. You only have yourself to blame if you get it wrong; but on the other hand... what a buzz if you get it right..

Thanks for all the input so far. :T It's been emotional!

jamesd

dunstonh wrote: »

HL dont discount any of hte AMCs on their SIPP. They take 0.5-0.75% of the annual managent charge and give no advice for it.

EdInvestor wrote: »

That's because there is no AMC on their SIPP.Just shows how much dunstonh knows about the product, but then why would he know, as it's not an IFA product (like many other low-cost profitable ways of investing).

Edinvestor, please cut the deception level a bit. Dunstonh is entirely correct that the funds held inside the HL SIPP have annual management charges and HL gets a cut of those without providing advice. Same funds from an IFA and the IFA would be using that money (if on commission basis like HL) to provide investment advice and management services.

It's trivially easy to check this, just look at the discount HL offers on their ISA and see that those discounts aren't available in the SIPP. Then realise that HL isn't giving away all of the commission in the ISA, just part of it.

In addition, HL will charge 0.5% on investments held in the SIPP if they aren't getting that much in commission, which applies mostly to shares and investment trusts but also applies to some low cost tracker funds.

HL can still be a better deal than some things - it is cheaper than the SIPP option at my workplace for my fund size, more expensive than the non-SIPP alternative - but when the same commission HL gets for no advice can pay for advice from an IFA it's hardly a great deal for those who have any interest in advice.