SIPP Questions?

adman_21

Hi,

I posted about a week ago and since then have been doing some reading about SIPPS.

I have a couple of questions that you might be able to help me with.

Assuming that i decided to open one as my main pension (i dont have the choice to opt in to a scheme) could you help explain some of the charges. Having looked at a couple of different ones i understand that some are more expensive than others.

Assuming i decide to just invest in some funds to start with, with a view to getting advice from an IFA about which ones i should look at as well as doing some reading myself have i understood the charging structures correctly?

All of them have an annual management charge, for some this is fixed or a percentage upto a certain fixed amount and for others this is set as a percentage of the overall fund? So for the H&L Vantage Sipp there is no annual charge on 2000 of the funds but if i chose a fund outside of this it could potentially rise to a maximum of £200 per year for the next couple of years but would never be taken as a percentage?

It mentions there is no setup charge or charges on monthly contributions - does this mean i can move the money i put in each month into any funds i choose without penalty? So assuming i was contributing say £400 per month i could move this money into the fund of my choice for free without incurring a charge. I was wondering about this point because some funds mention an initial buy in cost as a percentage - say 5.5% of the amount you are investing. Is it possible to avoid this - i am sure i read this on another thread somewhere.

Other than this (assuming i am not dealing in shares or investment trusts which can incur more charges on a per deal basis depending on the amount) the only other charge i need to take into account is the individual fund charges which i assume are calculated as a percentage of the amount specifically stored within that particular fund held within the SIPP. So if i had a SIPP with Fund A and B where fund A has an annual management charge of 1.5% and fund B had a management charge of 0.5% and i had £1000 in fund A and £1000 in fund B at the end of year 1 then i would be charged £15 from fund A for the AMC and £5 for fund B + any additional management charges that may apply?

Also when this is setup for the contributions i am making will it be taken directly from my salary at source or will i need to contirbute and then apply to get the tax back?

Sorry if these seem like straighforward questions but they should allow me to make my mind up about how to go about starting my pension in the next couple of months.

thanks in advance

purch

All of them have an annual management charge, for some this is fixed or a percentage upto a certain fixed amount and for others this is set as a percentage of the overall fund? So for the H&L Vantage Sipp there is no annual charge on 2000 of the funds but if i chose a fund outside of this it could potentially rise to a maximum of £200 per year for the next couple of years but would never be taken as a percentage?

If you invest only in the 2,000 odd unit trust/OEIC funds that pay them a trail commission (a commission they receive for as long as you hold the fund) then there will be no annual fee. If you hold anything that they do not receive this ongoing commission for, will attract a charge of 0.5% on the amount, up to a maximum of £ 200.00 a year. (£40K holding)

There is a wide difference between annual charges on SIPP's. Sippdeal have no annual management fee, irrespective of what you hold, others will charge a lot more.

purch

It mentions there is no setup charge or charges on monthly contributions - does this mean i can move the money i put in each month into any funds i choose without penalty?

Yes, HL don't charge a set-up fee, nor do many other providers. Many of the UT/OIEC funds will have the initial charge discounted, often to zero, so there will be no charge for investing. Again this will be the same across many other providers.

middlepuss

adman,

I'm about to open a Hargreaves Lansdown SIPP so thought you might be interested in this as an example.

I'm transferring a Stakeholder which is currently with another provider to a H-L SIPP. I can't do a stock transfer so it will be a cash transfer. My understanding of the deal I will get with H-L is:

1. H-L do not make a charge for setting up the SIPP.

2. If a fund I buy within the SIPP has an initial charge then H-L will rebate this to me in full on most funds. (This rebate does not get returned to me as cash, it's used to buy more of the fund.) On some funds they don't rebate quite the full initial charge. So, probably no initial charge.

3. I will pay the annual management charges of the funds I invest in. H-L will not rebate any of this amc to me.

4. When my SIPP goes into income drawdown the only charge I will incur will be £75+VAT for the GAD calculation which, I understand, must be done when a SIPP goes into drawdown. This GAD calculation must then be done, and the fee charged, every fifth year.

Because I have other investments which give me a good spread, this SIPP will be invested in just one fund: the HSBC UK All Share Index Tracker. This fund has an amc of 0.25% and TER of 0.27%. So - if my understanding is correct - the only cost I will incur on this SIPP will be 0.27%pa plus the GAD fee.

purch

When my SIPP goes into income drawdown there will be no charge for this from H-L

I am sure they will charge you for a GAD calculation.

middlepuss

purch wrote: »

I am sure they will charge you for a GAD calculation.

purch, thanks, I didn't know that. Just looked on H-L's website and it's £75 for the GAD calculation, if I have understood http://www.h-l.co.uk/pensions/income-drawdown/transferring-an-income-drawdown-pension correctly. I have edited my post above accordingly.

jamesd

adman_21 wrote: »

It mentions there is no setup charge or charges on monthly contributions - does this mean i can move the money i put in each month into any funds i choose without penalty? So assuming i was contributing say £400 per month i could move this money into the fund of my choice for free without incurring a charge.

Yes.

adman_21 wrote: »

I was wondering about this point because some funds mention an initial buy in cost as a percentage - say 5.5% of the amount you are investing. Is it possible to avoid this - i am sure i read this on another thread somewhere.

You avoid most of it, you'll pay the difference between the fund's charge and the HL or other reseller's discount. Usually nothing to pay at HL, may be 0.25% or so. There's also some difference between creation cost and selling cost that means it's not quite no loss on purchase, but this is a minor effect that you probably won't even notice on a unit trust and it's done differently with an OEIC in a way that masks it completely.

adman_21 wrote: »

So if i had a SIPP with Fund A and B where fund A has an annual management charge of 1.5% and fund B had a management charge of 0.5% and i had £1000 in fund A and £1000 in fund B at the end of year 1 then i would be charged £15 from fund A for the AMC and £5 for fund B + any additional management charges that may apply?

Right. But you wouldn't be charged this as an explicit charge, it's deducted from the fund income or capital (depending on the fund) and shows up as reduced capital value or reduced income.

adman_21 wrote: »

Also when this is setup for the contributions i am making will it be taken directly from my salary at source or will i need to contirbute and then apply to get the tax back?

Direct debit. About a month after the direct debit you'll receive 25% top up from HMRC in the form of the basic rate tax rebate. If you pay higher rate tax you'll need to tell HMRC about your pension contributions to claim that back.

middlepuss wrote: »

2. If a fund I buy within the SIPP has an initial charge then H-L will rebate this to me in full on most funds. On some funds they don't rebate quite the full initial charge. So, probably no initial charge.

You won't actually get a rebate, instead you will get more of whatever you purchased.

For the ISA and fund and share account cases you also don't get a rebate of the initial charge but the annual charge rebates are paid out to you.

middlepuss wrote: »

Because I have other investments which give me a good spread, this SIPP will be invested in just one fund: the HSBC UK All Share Index Tracker. This fund has a amc of 0.25% and TER of 0.27%. So - if my understanding is correct - the only cost I will incur on this SIPP will be 0.27%pa plus the GAD fee.

Correct.

Loughton_Monkey

adman_21 wrote: »

Assuming i decide to just invest in some funds to start with, with a view to getting advice from an IFA about which ones i should look at as well as doing some reading myself have i understood the charging structures correctly?

The best value you can get out of an IFA is an assessment of your needs, and a range of providers to satisfy those needs.

It seems you are 'going it alone' on all that, and using an IFA for fund choice. Is there any reason you think they have a better crystal ball than anyone else? By all means pay for this, but it's a bit like doing your own diagnosis (I have an infection), then doing your own treatment strategy (I need antibiotics) and then paying a doctor to suggest whether you should buy Bayer or Astra Zenica!

Not good value for money.

adman_21

Thanks for the replies, much appreciated.

middlepuss

jamesd wrote: »

For the ISA and fund and share account cases you also don't get a rebate of the initial charge but the annual charge rebates are paid out to you.

A H-L Vantage account that is not a SIPP nor an ISA - i.e. just an account in which to hold investments - also rebates the initial charge on many funds.

adman_21

Loughton_Monkey wrote: »

The best value you can get out of an IFA is an assessment of your needs, and a range of providers to satisfy those needs.

It seems you are 'going it alone' on all that, and using an IFA for fund choice. Is there any reason you think they have a better crystal ball than anyone else? By all means pay for this, but it's a bit like doing your own diagnosis (I have an infection), then doing your own treatment strategy (I need antibiotics) and then paying a doctor to suggest whether you should buy Bayer or Astra Zenica!

Not good value for money.

To be honest i will probably keep doing some more reading first before deciding on a fund and maybe speaking to an IFA but i agree that as i will be setting this up myself and managing it myself that i need to learn about the different funds out there. I think i would prefer to be in control of my own finances and this is certainly the first step.