Cheapest Sipp: build yourself a low cost DIY pension article

gterr

malc_b wrote: »

Is it just me or can none of the providers produce clear information? FOr SIPPs I'm thinking of mainly. ATS is maybe the best as it gives worked examples but not enough IMO. iWeb is just hopeless and doesn't even say what death benefits calculation cost except the open ended "time/cost basis".

BTW, here is my understanding, feel free to correct me, or learn from it maybe (see here).

Flexible drawdown - need to show £12k of other income (annuities I guess) then can take what you want when you want. One off charge for this usually.

Capped drawdown - worked out from gilt rate (GAD calculation). See HMRC link above for excel file and instructions. Worked out every 3 yrs <75 and every yr >75. Often a GAD calc cost (not for ATS that I could find).

Providers seem to charge for SIPP, and when retired add another annual charge, and a charge for starting drawdown, and a charge for each GAD. Some charge all of those, some not, AFAIK.

But won't all this change soon with the new pension 'freedoms'? Hopefully the charges will be simplified, and lowered (or am I being too optimistic)? The lack of clarity with respect to charges (in the accumulation phase but, more importantly, the drawdown phase) is the only thing that deters me from starting a SIPP. At least with an ISA I know where I am.

dunstonh

Is it just me or can none of the providers produce clear information?

Its just you

Most providers are fine. However, there are some providers that have lists of charges that appear almost endless.

Providers seem to charge for SIPP, and when retired add another annual charge, and a charge for starting drawdown, and a charge for each GAD. Some charge all of those, some not, AFAIK.

That is the choice you need to make. Do you want a provider that is virtually all-in with simple charges or do you want one that charges for everything separately.

But won't all this change soon with the new pension 'freedoms'? Hopefully the charges will be simplified, and lowered (or am I being too optimistic)?

The changes have no impact on charges as it just expands options that already exist.That said, you may well see providers introduce a new charge to deter short term transfers just to fully withdraw the whole pot.

The lack of clarity with respect to charges (in the accumulation phase but, more importantly, the drawdown phase) is the only thing that deters me from starting a SIPP. At least with an ISA I know where I am.

Like malc_b, your problem is associating all providers with a minority.

gterr

dunstonh wrote: »

Its just you


The changes have no impact on charges as it just expands options that already exist.That said, you may well see providers introduce a new charge to deter short term transfers just to fully withdraw the whole pot.


Like malc_b, your problem is associating all providers with a minority.

Then I've obviously misunderstood the impact of the pension changes that are coming up. I assumed that in the future since anyone over a given age could elect to take as much of their pension as they wished in cash, there would be no need for GAD calculations and the like. So, there would be no need for SIPP providers to charge for GAD calculations, there's be no capped or flexible drawdown - just drawdown - and SIPP providers' charges would be simplified as a result.

dunstonh

I assumed that in the future since anyone over a given age could elect to take as much of their pension as they wished in cash, there would be no need for GAD calculations and the like. So, there would be no need for SIPP providers to charge for GAD calculations, there's be no capped or flexible drawdown - just drawdown - and SIPP providers' charges would be simplified as a result.

There wont be GAD calculations but there will be illustration of the impact of drawdown over the period. Drawdown will still exist (and most providers charge for plans being in drawdown. not a GAD calculation. Although a small minority do).

gadgetmind

gterr wrote: »

and SIPP providers' charges would be simplified as a result.

That would be the obvious outcome, but the financial industry likes to skim off the cream, so they'll find some other way of getting sneaky charges in!

dunstonh

gadgetmind wrote: »

That would be the obvious outcome, but the financial industry likes to skim off the cream, so they'll find some other way of getting sneaky charges in!

It is worth noting that the DIY market does seem to have longer lists of charges than the products retailed via IFAs. If I was cynical, I may wonder if thats because many DIY investors lack knowledge and perhaps only look at the headline charges and not all the rest.

gadgetmind

dunstonh wrote: »

It is worth noting that the DIY market does seem to have longer lists of charges than the products retailed via IFAs.

Well, you do keep telling me that IFAs can get cheaper products but I've yet to see anyone posting here who's gone to an IFA and come away with anything that I'd regard as being cheap.

If I was cynical, I may wonder if thats because many DIY investors lack knowledge and perhaps only look at the headline charges and not all the rest.

I'm sure you're right, after all, look at how many people think that HL are cheap!

However, it is all a bit of a slog when going through *all* of the charges during drawdown. I did tabulate BestInvest's charges when moving our SIPPs there, and did find the £100+VAT pa drawdown charge plus £100+VAT for a GAD calculation rather high, but it was still the best home as they are (for us!) fixed fee for ETFs rather than percentage based.

Things should be better for us moving forwards as we can drain my wife's SIPP over 6-7 years tax free and then avoid all drawdown fees for her. I'll still be stuck with them, but that can be tolerated on a 7 figure pot.

kidmugsy

dunstonh wrote: »

The changes have no impact on charges as it just expands options that already exist.

At least one should save on the charge for a GAD calculation. Thereafter it'll all depend on how competitive the marketplace is.

kidmugsy

gadgetmind wrote: »

the financial industry likes to skim off the cream

Don't we all? It's competition that will discipline them. If the customers are set on being mugs it won't discipline them much.

gadgetmind

kidmugsy wrote: »

If the customers are set on being mugs it won't discipline them much.

Well, quite. That's why I find people who tolerate high prices for so-so service so annoying; as long as platforms can find enough of these mugs, they won't have to sharpen their pencils.