SIPP or ISA???

guitarman001

I recently opened a Hargreaves Lansdown shares ISA with the aim of putting in £100 per month until I retire. However I see that their SIPP also has NO FEES (is that not peculiar?) when buying only funds! If I put £800 a year in (say for now) then am I correct in saying that £200 gets added by Hargreaves (via the government?) to top it up to £1000?

So am I not better off actually paying into the SIPP?

Newbie2saving

There are no fees usually in the Vantage ISA with HL unless holding one of the tracker type invetsments such as HSBC / Vanguard.

Remember once money is in a SIPP it is in for good, no pulling it out for a car purchase or house deposit. At least that is the way I understand it, hence everyone would be doing it to get the extra 20% from the government. So ISA has more flexibility. Depends on your investment aims I suppose...

guitarman001

Yep, understood... it's a tough one!!

Shove it in the ISA and can use gains for house purchase. Too short a timescale for that, though? Part of me does think whenever I get a place, I should shove ALL free money into the mortgage.

OR get your tax back PLUS whatever your fund makes (and if I go 40% shares : 60% bonds then it's almost guaranteed a return compared to 80% equity : 20% bonds). Not to be sniffed at. My work pension is losing me a small amount of money but I don't care because I get a 100% gain when they match my contribution. This is sort of like the same deal, but then you're tied in until retirement. Lots to think on!!

guitarman001

Is it common for employees to get their company to match their contribution (to a certain amount) to put into their own SIPP??? There's a form for it on the Hargreaves website but I haven't heard of anybody doing this. Ours is with a big insurance group but the fees are (roughly 4 times) higher than those charged by the Vanguard funds.So I'm wondering if it would be worth switching - I'd probably be saving myself a lot of money over the long-term.

I must ask the finance officers at work...

dunstonh

However I see that their SIPP also has NO FEES (is that not peculiar?

It has fees. HL keep the IFA trail commision (0.5%p.a. on most funds) and the platform commission (around 0.25-0.5% on most funds)

guitarman001

Could be a target for the platform & RDR review changes..
Not on the Vanguard funds, though?

jem16

guitarman001 wrote: »

So am I not better off actually paying into the SIPP?

Apart from the 25% tax free lump sum you are only deferring the tax as it's likely you will be paying tax in retirement as you say you have a works pension. If you're currently paying higher rate tax it would be worth it if you think you'll only pay basic rate in retirement.

As to your question on your employer paying into the HL SIPP it would be very unlikely. Most do not give you that choice but a few do, mainly those that don't offer a pension scheme already though.

guitarman001 wrote: »

Could be a target for the platform & RDR review changes..

HL's business model has to change. There is no doubt about it.

Not on the Vanguard funds, though?

Nobody knows. It could be a £2 charge for every fund or it could be a platform percentage charge.

dunstonh

Could be a target for the platform & RDR review changes..
Not on the Vanguard funds, though?

The whole platform will need to change. Whether they go £12 or whatever for all funds or a different amount for all is unknown. They cant pick and choose amounts

grey_gym_sock

in case it wasn't clear: HL currently charge £2 per month on Vanguard fund whether they're in a SIPP or an ISA or unwrapped (the "fund & share account").

and if you have the same fund in a SIPP and an ISA and unwrapped, they charge you 3 times.

i much prefer ISAs to pensions - unless you have the offer of matching employer contributions for the pension. especially if you're only getting 20% tax relief on pension contributions, and are a long way from drawing a pension.

(or, if you've maxed out your ISA, then pension or unwrapped is a different question.)

guitarman001

You prefer ISAs to pensions even though pensions give you 20% tax back if you're a basic rate payer.. why if it's for long-term?

grey_gym_sock

you get 20% tax back at the start. at the end you pay tax on the pension but not on the 25% tax-free lump sum. supposing your pension is also taxed at 20% (and who know what income tax rates will be that far ahead?), then you'll pay on average 15% tax at the end. a small gain.

that's assuming the government don't change the tax/pension rules to your disadvantage, as they have done before.

charges are probably a little higher in a pension. not for everything or by a large margin, but e.g. switching providers is probably more expensive, there are generally fees for drawing an income (later on, when you're allowed to), etc. if you ever want to be in cash (though i know generally you shouldn't be for a long-term investment), then you either can't access the best interest rates, or have to pay higher charges for a pension which does give access to them.

overall, tax + charges combined makes a fairly close call, if you don't mind being vulnerable to the whims of future governments.

but a pension is also less flexible. you can't use it buy a house, for emergency spending, to start a business, ...