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Cheapest Sipp: build yourself a low cost DIY pension article

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  • whambamboo
    whambamboo Posts: 1,287 Forumite
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    Since a SIPP is essentially an ISA with more restrictions and higher costs, a comparison with it would come in handy.

    E.g.,

    £3900 to invest in an ISA - by 65, it would be worth at 7% PA growth + 0.5% annual commission rebate for a 25 year old: 3900 * 1.075 ^ 40 = £70,372

    £5,000 to invest in a SIPP - by 65, you would have 5000 * 1.07 ^ 40 = £74,872

    So the SIPP has only slightly more money by 65, despite the much larger initial investment (thanks to tax relief). But then when it comes to income, the ISA is yours to do what you like with, and all income is not taxable - you can spend it all and enjoy yourself.

    But with a pension, you'd pay 22% tax on the income coming out and you're forced into either an annuity or income drawdown. Annuities are very expensive because gilt yields are so low (the government's cost of borrowing is very cheap at the expense of pensioners).

    And income drawdown is capped at 120% of the annuity rates (i.e. very low), so you'll probably never spend most of your pension anyway.

    So you won't ever see much benefit from it really.
    My policies are based not on some economics theory, but on things I and millions like me were brought up with: an honest day's work for an honest day's pay; live within your means; put by a nest egg for a rainy day; pay your bills on time; support the police - Margaret Thatcher.
  • whambamboo
    whambamboo Posts: 1,287 Forumite
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    Is part of this article missing?

    It refers to
    Sharedealing fees. It has dealing charges for buying and selling individual shares online ranging from £9.95 to £29.95 (See table of charges).

    Decent cash interest rates. If you are keeping money in cash, the interest rates are very good for amount over £7,000. For lesser sums it can be somewhat disappointing (see rates).

    But there is no table of charges on MSE to compare the products, or other information on the costs of the other products.

    BTW, the interest rates are not 'very good' over £7,000, as the interest rate is tiered:

    http://www.h-l.co.uk/our_services/interest_rates_sipp.hl

    1% AER on first £500
    2.27% AER on next £2500
    3.82% AER on next £3000
    4.85% AER above that

    so on £7,000, you get 2.52% effective AER :-(

    here are the numbers:
    £10000, 3.22% AER
    £20000, 4.03% AER
    £50000, 4.52% AER
    £100000, 4.69% AER
    My policies are based not on some economics theory, but on things I and millions like me were brought up with: an honest day's work for an honest day's pay; live within your means; put by a nest egg for a rainy day; pay your bills on time; support the police - Margaret Thatcher.
  • whambamboo
    whambamboo Posts: 1,287 Forumite
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    oh and another thing, HL's sipp doesn't appear to be cheapest at all, unless you want to buy commission-paying funds. The annual fee is 0.5875% on *all* shares for instance.

    So if you want to buy shares then HL is going to charge you 0.5875% PA on top of its dealing costs.

    Sippdeal or Alliance Trust Select Sipp don't have annual charges like this.
    My policies are based not on some economics theory, but on things I and millions like me were brought up with: an honest day's work for an honest day's pay; live within your means; put by a nest egg for a rainy day; pay your bills on time; support the police - Margaret Thatcher.
  • wotsthat
    wotsthat Posts: 11,325 Forumite
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    The most cost effective way to run a SIPP is to hold shares directly and make sure that the SIPP provider doesn't charge an annual fee. i.e. choose sippdeal or alliance trust.

    I can't any sense in investing in funds within SIPP's - there's still a fund providers annual fee to pay.

    I've been blindly putting money into a pension for years and only just realised that I would have been better off using ISA's which would have given me more control over capital as well.

    I'm now using ISA's for retirement saving and a SIPP (invested in shares) as a home for my old pension fund. I'd only consider contributing more cash to my SIPP if I'd used all my ISA allowance.
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
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    For anyone who wants to do regular monthly contributions into a fund investment in a SIPP, I think there's no doubt H-L is the cheapest.

    But for transfers in of a lump sum ( eg consolidating old pensions),particularly if wanting mainly shares or a mixed portfolio of shares and funds with little buying or selling, I'd have thought Sippdeal would be the winner: it also has a better cash interest rate and first class admin/service (the industry leader on the technical side of Sipps).

    https://www.sippdeal.co.uk

    I hesitate to recommend https://www.alliancetrust.co.uk yet, as its internet platform is very new, though it certainly has its fans, especially among investment trust fanciers.

    It is probably second cheapest for regular contributions into funds after HL and 2nd best after Sippdeal for shares and portfolios where there are few transactions. Investment in its own ITs is very cheap.
    I can't any sense in investing in funds within SIPPs - there's still a fund providers annual fee to pay.

    Quite agree, the big advance with the new low cost online Sipps is the ability to hold shares directly and pay virtually no charges within a pension wrapper.

    This offers potential for massive savings over the life of a pension. :)

    #A note re regulation: your shares and funds (and cash) are not actually held at the Sipp company but in nominee accounts at the broker or fund manager or bank which is associated with the Sipp, which are themselves regulated.So there shouldn't be any need to worry about the security of the money.The lack of regulation before next year mainly impacts on the misselling side: effectively at present they are an "execution-only" product.You can't complain if you later make a loss and believe you were missold.

    In addition, until regulation comes in, you can't move "protected rights"(Serps/S2P) pensions into a Sipp.
    Trying to keep it simple...;)
  • whiteflag_3
    whiteflag_3 Posts: 1,395 Forumite
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    http://www.fsa.gov.uk/consumer/updates/updates/unfair_contracts/sipps.html

    Shame it needed the FSA had to step in to make SIPPdeal amend their unfair terms.

    A lesson to all DIYers that its important to fully understand "terms and conditions" - might not always have the FSA to help you out.
  • whambamboo
    whambamboo Posts: 1,287 Forumite
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    whiteflag wrote:
    http://www.fsa.gov.uk/consumer/updates/updates/unfair_contracts/sipps.html

    Shame it needed the FSA had to step in to make SIPPdeal amend their unfair terms.

    A lesson to all DIYers that its important to fully understand "terms and conditions" - might not always have the FSA to help you out.

    THey chucked a load of exclusion clauses in their contract to cover themselves, but the clauses are unfair under the Unfair Terms in Consumer Contracts regulations. They hadn't enforced the terms, and might have not had any intention of doing so, and indeed they weren't enforceable under the law, so the consumer is actually worse off in a way following the FSA action, because the fair terms *are* enforceable.

    This is not really a lesson to DIYers, the same thing could happen with any financial services company - they could include unfair terms, and if you wanted help to judge, the person to see would be a *LAWYER*, not a financial adviser. Simple solution - just reject them when they try to enforce them: they're illegal. You certainly don't need the FSA to help you out - I'm no lawyer but I've rejected unfair contract terms in the past and have sued where necessary

    What is your line of business btw?
    My policies are based not on some economics theory, but on things I and millions like me were brought up with: an honest day's work for an honest day's pay; live within your means; put by a nest egg for a rainy day; pay your bills on time; support the police - Margaret Thatcher.
  • dunstonh
    dunstonh Posts: 117,068 Forumite
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    There was another article the other day about a few more low cost SIPP providers withdrawing from providing SIPPs due to the regulation coming in. A couple of scheme underwriters are pulling out as well.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • GTG
    GTG Posts: 470 Forumite
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    Anyone recommend a SIPP that accepts commercial property?

    TIA

    {Signature removed by Forum Team - if you are not sure why we have removed your signature please contact the Forum Team}

  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
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    Try A.J.Bell (owners of Sippdeal).
    Trying to keep it simple...;)
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