SIPP, Hargreaves Lansdown and Funds 2006 (dunstonh)

optimist_2

And I thought I was just getting on top of things!

Transact was the other product I have heard mentioned along with Skandia. I have looked at their website, but not being an adviser, it has been difficult to find information. I also didn't know that there was a SIPP available. If you set up a PPP with Transact, could you then move into their SIPP option at a later date, so avoiding unnecessary transfer charges? How does the charging structure compare between the PPP and SIPP options, and with the Skandia PPP? How is Transact approaching the RDR?

Thank you!

dunstonh

And I thought I was just getting on top of things!

Nothing in financial services stays the same. It moves very quickly. We are just going through a period that is faster than normal. The June/july FSA paper is not far away so that will settle things somewhat but then you have until the end of 2012 before the changes will have to be applied. You are not going to see some providers change their platforms until quite late.

How is Transact approaching the RDR?

Its an unbundled platform. It rebates the hidden commission to clients. It offers shares, ITs, ETFs, institutional funds etc. However, typically it comes in at around 0.2% a year more than the others using like for like funds. It has a big negative in that there is a 0.2% charge on purchases (including switches).

If you set up a PPP with Transact, could you then move into their SIPP option at a later date, so avoiding unnecessary transfer charges?

I dont know but I cant see why not. Although I dont know about the in situ transfers of assets. I know they do cash transfers with no issues.

How does the charging structure compare between the PPP and SIPP options, and with the Skandia PPP?

For funds, Skandia wipes the floor with Transact. For functionality and investment options, Transact trumps Skandia. Which brings me back to the earlier comments about deciding what features you want and understanding that some of them you will end up paying for.

optimist_2

My problem is, not having had any experience in this kind of investment before, I am finding it hard to work out what I want! I know that I need to reduce the charges as much as possible, and I imagine I will need the help of an IFA with my investment strategy, at least initially.

So the simplest thing would be to transfer into Skandia, using a fee based IFA as a discount (execution only) broker, who can then service and help manage the pension.

But I am not sure if, in the future I will need the additional functionality that a SIPP or Transact will bring, and to me it seems common sense to consider having these features available at the outset (maybe), rather than having the expense of further transfer charges later on, especially with the shake up after RDR.

I suppose that if Investment Trusts and EDFs are coming to PPPs anyway, that is part of the functionality problem solved, and that just leaves direct share dealing - how likely am I to need this?

I don't see as I can afford to wait until post RDR, as I need to move my funds into a modern low cost arrangement, and get back into the market as soon as possible.

Are there any other unbundled platforms that I should be looking at, as presumably this would remove uncertainty post RDR?

jamesd

Here's a rough guide:

1. Hargreaves Lansdown if you want a broad range of investment types to start, but won't be using shares, investment trusts or ETFs much (because those have a 0.5% a year charge). HL lets you consolidate pension, ISA and non-ISA investments at one place so it's convenient. But not cheap in absolute terms, just OK for range and to get started.

2. Transact has an interesting discount structure and combines pension, ISA and other investments in one place with a combined discount. That can substantially reduce the extra cost if you have a lot of money to invest across all of your investment types. That 0.2% purchase charge is halved at a million total pots size and eliminated at two million. The annual charge is discounted on a sliding scale starting with money in excess of £60,000. There may well be other discounts beyond those given on that transact page. It's not really likely that Transact is cheapest or the best choice for someone starting out. I don't see a point in using the non-SIPP version if you might want the SIPP version - there's no cost difference.

3. Skandia is cheap for funds and on their new product expect to offer ETFs as well. It's an inexpensive option for pension and ISA money that undercuts Hargreaves Lansdown, once you've managed to recover the initial cost of buying it from an IFA. Skandia also offers a SIPP, though the management of CRA funds within the SIPP appears clunky - apparently can't manage them directly online.

Nobody can say how likely you are to need direct share dealing. That depends on your own interests. You probably shouldn't start out doing much of it, though.

There's no prohibition on having money at different places. I've currently got three different pensions and might well end up with a different three with HL offering options that Skandia doesn't offer, for some of my pot. Work pension(s) are the others. That might get me the best combination of low total cost and flexibility.

optimist_2

James, thanks.

How does Alliance Trust fit into this?

So I could transfer everything initially into Skandia, given that it is very good for funds and ETFs/Investment Trusts are on the way. It also has a new product in the pipeline for post RDR, and the increase in platform charges on the new product is likely to be minimal. I could buy the product using a fee based IFA on an execution only basis, who could then provide ongoing servicing and management using the savings from the rebated trail commission.

In the future, after RDR and with more experience, I could review matters, and make part transfers to other products that have features Skandia doesn't have. Are part transfers allowed, and what are the exit charges from Skandia?

In addition, I did buy some shares through HL a while back, and still receive their Investor Times magazine, so might be able to access their online analyis tools.

I had thought of transferring into stakeholder for the time being, but dissmissed that on account of reduced range and type of funds. It also seems to me that something like Skandia would work out cheaper anyway.

Lastly, what is the minimum investment criteria for the Skandia CRA? I may decide to just let the pension funds sit for a while. I have 100k here, but no stocks and shares ISA, so for the sake of diversity, it may be a good idea to open one on the Skandia platform.

pension-newbie

very interesting - thanks guys.

I am nearly 50 I have just transferred my SERPS pot into H-L Vantage. So this thread is very interesting, and makes me feel that I am in a good (if not the best place).

jamesd

pension-newbie, to get some quick check about best place, multiply your pension pot value by 0.005 and subtract £50. That'll give you some idea of your potential annual saving from using Skandia for funds after buying from an IFA on fee basis with no trail commission. Not perfect, just a rough idea and you'd have to allow for the initial cost of the IFA. The actual saving will depend on the funds you use, the IFA you buy from and whether you ask for any ongoing services from the IFA. The cost saving is what's prompting me to look at an option other than HL. And then I'll probably also be able to save on my ISA and maybe unwrapped investments as well. HL has nice facilities and is very convenient - they have done a good job there. But not on costs and when you might be looking at paying them an avoidable £500 a year say in undiscounted fund annual management charges it starts to become worth doing something about it. It's generally my favourite place to recommend for newcomers to investing.

optimist, I didn't find Alliance Trust to be particularly competitive for me so I rejected it and can't say much about it. Might be different for you.

The new product is the one that is expected to offer ETF support.

Full trail commission would be 0.5% typically. I don't think that eliminating this would mean it was paid to you, it's more likely to be reduced charges and better fund performance or a rebate into your pension pot. But if you did want ongoing servicing the IFA could set things up with some trail commission paid to them or you could pay a fee whenever you want it. Which is cheapest/best depends on how much money is involved. Skandia has a built in sector rebalancing tool so in theory you might not need an IFA to do that work if you don't change your desired allocation after initial setup.

Stakeholder is mostly an obsolete product. It has done its job already in producing more competitive pricing from non-Stakeholder products. Not the sort of thing you'd find an IFA mentioning, except as something they are required to compare to in a suitability report.

Part transfers are fine and the cost isn't excessive, just don't remember it at the moment.

You can't easily use the HL portfolio analysis tool for funds held elsewhere. It lets you do it easily for the ones you hold but not for a virtual portfolio. You can individually enter funds each time you want to do it but there are better ways of doing that that elsewhere do let you save the investment list. They do offer a way to use it for funds in another place but that involves re-registering the funds with HL as the selling IFA. That would cause all servicing from an initial IFA to end and might break your agreement with the original IFA. I don't know what HL would do if the funds were sold with no trail, so they wouldn't get paid anything. Doubt it's necessary anyway, Skandia probably provides comparable tools.

With 100k there's no doubt at all that you can get a better deal from Skandia via an IFA than HL offers, for funds. It's a natural for a fee-based purchase from an IFA. 0.5% trail that you can potentially save is £500 a year so it's easy enough for that to cover IFA fees in a sensible amount of time.

pension-newbie

Thanks James

My SIPPS balance is £50K (will be when the transfer goes in)
I have a separate company DC scheme for the last year £10K (12%) per year
Prior to that I was FS scheme estimated pension £22K per year (3% RPI link) starting 2027

Although I know its all the same really I plan on using the DC scheme and the SIPPs for slightly riskier (but mainstream) funds and I do plan to use the full SIPP options for investment, but not initially.

Thx

jamesd

ISA and pension are an interesting combination, depending on when you might need to take investment income and how you do that.

The amount of income you can take is limited by the GAD limit. Below age 65-70 that is currently less than the sustainable level of income you can get from investments without capital value drop, 6% or so being what I use as an estimate of that. This GAD limit only applies where you use income drawdown. However, if you buy an annuity you'd have a similar income restriction based on what an annuity would pay out.

That's a problem if you retire or are forced to retire before you reach the age at which the GAD limit or annuity income are high enough. Also if this happens before the state pensions and their income of perhaps £7,000 a year starts. At these earlier ages you can easily need to draw income at a faster and unsustainable rate to compensate for the state or work pension income that you don't yet have. And the GAD limit blocks you from doing this, potentially making you artificially poor and unable to support yourself at earlier ages then relatively well off after the state pension starts.

One remedy for this is to start taking an income from the pension as soon as you reach 55 or some alter age at which isn't conceivable that you could support yourself. Then you invest the money you take in ISA or other investments so you accumulate advance payments that you can draw on later. A few years of this and you may be able to spend at a high enough rate even with the GAD limit. If you have sufficient capital you could also take the income and immediately reinvest it into another pension, getting a second chunk of tax free lump sum later.

If that's not sufficient, or if you start retirement at age 55 with no opportunity to save income then an alternative is using ISA or non-ISA investments. There's no limit to how fast you can reduce the capital value of these so you can plan to do this to produce an income that stays the same both before and after the state pensions start.

The combined effect of these things is that it can be very useful to use ISA investing to complement pension investing. You sacrifice some tax relief but gain the ability to take the income and capital drawing down at a high enough rate.

optimist_2

James,

Thanks very much for the information on the GAD limit, I had no idea this was the situation. I had the chance to put my pension fund into drawdown briefly when I had reached 50, but decided not to as I considered its size of 100k too small, only giving an annuity of 5k approx. I cannot take my occupational pension until 60, so I decided to leave the money purchase pot where it where it was, and rethink again at 55. This is now 4 years away, and I would love to retire at 55, but would need to finance myself until the occupational pension kicked in at 60. I could take the latter on an actuarilly reduced basis, but don't really want to do that, or not for two years at least ie 57/58.

So, what should I do in the next four years up to 55? Continue to pay into the pension, or switch these contributions now into investment ISAs? My hunch is the latter. Or is the pension fund too small for the GAD limits to come into play, so that I can safely build up the pension fund further?

I have some ISA funds already, so that would be a start. With regard to reinvesting the income from the first pension into a second, isn't this regarded as recycling, or does this only apply to the tax free lump sum?

Going back to the question of Skandia, I have found an IFA who is prepared to provide investment advice only for £40 a month or £120 an hour, on the product of my choice. Does that sound reasonable? So that leaves me free to set up the Skandia product on an execution only basis. He would charge me £240 for the initial investment advice, but I think he may be prepared to waive this if he got the execution only work. Previously, in these forums, it has been suggested that the right IFA would offer the following terms:

£500 Execution only with nil set up commission
Investor Charge of £68.50 - is this the same as the platform charge?
No initial charge on funds (including swwitches)
All fund based trail commission rebated
Net AMC of 0.5%

Is this right? However, dunstonh has said it is possible to get an AMC of 0.1%, so how is this achievable?

Alternatively, I could go through Clubfinance with no set up fee, but they only rebate 75% of the renewal commission, a bit like HL?

In the event of a full or partial transfer away from the platform, would this incur a cost from the platform, the adviser, or both? If I decided to change the adviser on the platform (is this called re-registration?), would I be able to do this?

Thanks!