SIPP or Stakeholder Pension

HopHopAndAway

I have recently started my first permanent job since finishing my graduate studies. The company I work for does not offer a company pension but will pay 15% of my salary into a Stakeholder pension of my choice.

I am aware that this is a very generous offer as this is seperate to any contributions I would make myself. However, I was wondering whether to go for a stakeholder pension through a low fee broker such as Cavendish. I believe Aviva would offer the lowest AMC.

However, I was also considering a SIPP through Hargreaves Lansdown but as I understand it the charges would be much greater than a low cost stakeholder. Other than the greater choice of funds/flexibility in a SIPP is there any other advantages over a stakeholder?

I am 28 and was planning on paying in around £150-200 a month of my salary into a pension (on top of the 15%). Does this sound a reasonable amount to be paying in?

Loughton_Monkey

Why SIPP or Stakeholder? A Personal Pension is potentially better than both of these, depnding on your needs. Stakeholders were originally intended for the 'lower' end of investors, giving capped charges on a very small choice of funds.

SIPP's on the other hand, are more inteded for the much large and certainly 'sophisticated' investor who wishes to 'Self' invest in a variety of vehicles - not just pension funds or OEICs.

15% is a generous amount, but not necessarily going to give you benefits anything like 'Final Salary' size when you retire. You should seriously consider a minimum of 5% (possibly 10%) yourself - upon which you will get tax relief. Don't know how this compares to your £200 a month.

Maybe you should seek out a good IFA, and specifically request some sort of pension arrangement - on a 'fee' basis (not commission) under which you can access a 'complete' range of funds, whilst at the same time suffer TER [charging rate] akin to the capped [c1%] fee associated with a stakeholder.

dunstonh

However, I was wondering whether to go for a stakeholder pension through a low fee broker such as Cavendish. I believe Aviva would offer the lowest AMC.

The lowest as far as stakeholder pensions go (although on nil commission terms, I think they are not any more as they have just reduced the commission this month). They will still be there or thereabouts though.

However, they will not be the cheapest pension though. the Aviva PPP or a range of others will come in cheaper on a like for like fund basis.

However, I was also considering a SIPP through Hargreaves Lansdown but as I understand it the charges would be much greater than a low cost stakeholder. Other than the greater choice of funds/flexibility in a SIPP is there any other advantages over a stakeholder?

SIPPs are desgined for larger investment amounts for people who want more control over their investments. A typical TER on a single sector managed fund with HL will be between 1.6% and 2.1%. The Stakeholder is probably around 0.6% and you can get personal pensions as low as 0.22%.

I am 28 and was planning on paying in around £150-200 a month of my salary into a pension (on top of the 15%). Does this sound a reasonable amount to be paying in?

Your contribution is about right for a late start and the employer contribution will certainly make a good bump to that. However, the amount will depend on what you want to get back in retirement, when that is and the risk level of the investments you intend to use.

HopHopAndAway

dunstonh wrote: »

The lowest as far as stakeholder pensions go (although on nil commission terms, I think they are not any more as they have just reduced the commission this month). They will still be there or thereabouts though.

However, they will not be the cheapest pension though. the Aviva PPP or a range of others will come in cheaper on a like for like fund basis.



SIPPs are desgined for larger investment amounts for people who want more control over their investments. A typical TER on a single sector managed fund with HL will be between 1.6% and 2.1%. The Stakeholder is probably around 0.6% and you can get personal pensions as low as 0.22%.



Your contribution is about right for a late start and the employer contribution will certainly make a good bump to that. However, the amount will depend on what you want to get back in retirement, when that is and the risk level of the investments you intend to use.

Thanks for this information. I hadn't considered a personal pension. How would I go about getting a personal pension at 0.22%? Cavendish are currently charging 0.7% AMC for an Aviva personal pension versus 0.55% for a stakeholder. Unfortunately Aviva make it very difficult to find the charges pdf so I can't compare the fund total additional yearly charge at the moment.

I like the idea of the greater flexibility of a personal pension versus stakeholder without the very high charges of a SIPP. I was also looking at Standard Life's Active Money Personal Pension as they only charge FMC (0.8%) through cavendish, though it appears there may be many charges on top.

Thanks for all of your help and any other comments would be greatly appreciated.

jamesd

You're possibly making a mistake there. You're looking at the prices. What about the investments available and the performance of those investments compared to others available elsewhere? Need to make sure that the plan you select has the investments that you want to use and compare the prices for those investments.

dunstonh

Cavendish are currently charging 0.7% AMC for an Aviva personal pension versus 0.55% for a stakeholder.

Cavendish is a limited panel. The Aviva PPP should at worst come in the same as the stakeholder but typically better.

Unfortunately Aviva make it very difficult to find the charges pdf so I can't compare the fund total additional yearly charge at the moment.

Not an Aviva issue. Their product is not designed to be bought DIY. They provide the info but its up to the IFA to supply it. Cavendish in this case should be making the info available.

I was also looking at Standard Life's Active Money Personal Pension as they only charge FMC (0.8%) through cavendish, though it appears there may be many charges on top.

That has come out lowest on charges for me on 2 or 3 occasions in the past. Typically very small single premiums. More recently its been coming out around 20-30th place.

How would I go about getting a personal pension at 0.22%?

You need an IFA to access those or use a SIPP that runs certain funds at a loss. Cavendish doesnt offer them.

Do note what James says. Investments come first. Charges come second.

middlepuss

HopHopAndAway wrote: »

I like the idea of the greater flexibility of a personal pension versus stakeholder without the very high charges of a SIPP.

SIPPs don't necessarily have high charges.

For example, you can set up a SIPP with Hargreaves Lansdown and invest in the HSBC Index tracker and pay only the AMC on the HSBC fund, which is about 0.25% from memory. Or you could invest in an Investment Trust within your H-L SIPP and pay 0.5% (capped at £200 per annum) on the value of the investment trust. Plus of course the TER of the underlying investment trust. Also, you don't need to go via an IFA if you go with H-L: indeed you can do it all online in a jiffy.

Not saying this is necessarily a better option than the others you are looking at, but just wanted to point out that SIPP charges are not necessarily "very high".

As was said above, maybe the first step is to decide what you want to invest in: a with-profits fund, go-go unit trusts, index trackers, shares, investment trusts...? then look around for who offers what you want at the lowest charge.

dunstonh

For example, you can set up a SIPP with Hargreaves Lansdown and invest in the HSBC Index tracker and pay only the AMC on the HSBC fund, which is about 0.25% from memory.

That is an example of them running it at a loss. Skandia with their blackrock class D trackers are doing much the same.

The platform review may well put an end to that.

HopHopAndAway

Loughton_Monkey wrote: »

Maybe you should seek out a good IFA, and specifically request some sort of pension arrangement - on a 'fee' basis (not commission) under which you can access a 'complete' range of funds, whilst at the same time suffer TER [charging rate] akin to the capped [c1%] fee associated with a stakeholder.

How much should I expect to spend on an IFA on a non comission basis that would allow me to access the lower fee funds and offer advice on funds to invest in?

dunstonh

HopHopAndAway wrote: »

How much should I expect to spend on an IFA on a non comission basis that would allow me to access the lower fee funds and offer advice on funds to invest in?

Anything from £500 to £5000. However, £500-£1000 should be ballpark.

That can still make it cheaper than a nil commission stakeholder from Cavendish.