Sippdeal reduces charges

EdInvestor

Announcing that it has been approved for regulation by the FSA, the company says:

Rather than increase charges as you might expect, we have taken the opportunity to reduce charges – there will no longer be a charge for single or regular contributions (previously £15 + VAT each).

More competition = lower prices, just what we all want to hear.

dunstonh

I'm not sure it does.

I don't know this as I havent checked the contract but if you pay regular contributions into the SIPPdeal SIPP, doesnt it go into the cash account and require you then to purchase the investment and incur a dealing cost each time. If you use invesmtent funds, which most do, then that could turn out to be rather expensive as its £20per deal. You could do it less than 12 times a year but then you wouldnt be invested and that could cost you money on missed potential. Switches can also incur a £20 a go charge as well.

So, it appears on a quick glance, that sippdeal have got rid of one fee but are still making it up with others.

wotsthat

So, it appears on a quick glance, that sippdeal have got rid of one fee but are still making it up with others.

These are normal dealing fees. If someone is dealing, say, £300/ month it's going to be very expensive. Of course, that isn't the sensible way to do it.

If they instead contribute £300/ month and only trade 4 x year direct in equities (the only way to run a sipp imo). Then dealing charges would be around £48/ year and there would be no AMC.

Handed badly then you may as well burn money. However, if managed correctly then the savings on charges are massive. To calculate the savings simply multiply the fund size by 0.6% - 1.5% - the dealing charge soons seems insignificant.

This reduction in sippdeal charges is a positive move.

dunstonh

That isnt a problem for someone that knows what they are doing and understands that it has to be done but the risk could be that someone ends up spending 30 years in a cash fund because they didnt deal.

For the novice,this still makes fund supermarket pensions cheaper.

EdInvestor

Hargreaves Lansdown will still be the winner for those who want to make regular small contributions into funds, I agree.

I guess if someone did by accident end up in the cash account for 25 years (seems unlikely) at least they would get one of the better rates of compound interest around (after grossing up for tax ) and now would pay no fee at all.

wotsthat

For the novice,this still makes fund supermarket pensions cheaper.

Fund supermarket pensions will be cheaper for anyone who has a tendency towards overtrading - this affliction can be found in professional fund managers (i.e. experts) as well as novices.

Of course there is the risk that someone will simply sit on cash in a SIPP which is unsuitable for long term retirement saving (and it's unlikely they will be able to accuse anyone of mis-selling). However, as with anything in life, if not enough research is done then uninformed and inappropriate decisions will be made.

Any reductions in charges though has to be welcomed.

wotsthat

Hargreaves Lansdown will still be the winner for those who want to make regular small contributions into funds, I agree.

As a saver who invests in a SIPP directly into equities I welcome people who invest in funds - these people provide the SIPP providers with a profit diverting their attention away from the fact that my fund is growing free of charge.

dunstonh

I guess if someone did by accident end up in the cash account for 25 years (seems unlikely) at least they would get one of the better rates of compound interest around (after grossing up for tax ) and now would pay no fee at all.

Its not unlikely. Its considered a high risk area. Novices going into a contract they dont understand may forget to do it or may lose interest in doing it. Advisers are getting warned quite heavily at this time about things like this and SIPPs.

Fund supermarket pensions will be cheaper for anyone who has a tendency towards overtrading - this affliction can be found in professional fund managers (i.e. experts) as well as novices.

Fund supermarkets dont use the cash fund and get direct investment into funds. It removes the potential of the risk mentioned above. You can also get discounts on the annual management charge and that is where they can beat the likes of HL. Fund supermarkets have proven to be very successful with ISAs and Unit Trusts etc. So, having the same simple contract on pensions is ideal for those that have got used to the fund supermarket concept.

Every contract has it's pros and cons.

cheerfulcat

Advisers are getting warned quite heavily at this time about things like this and SIPPs.

That's less to do with the riskiness of SIPPs per se and more to do with avaricious advisors moving unwary punters into SIPPs for commission, surely?
Per the FSA newsletter -

" Advice to switch into SIPPs should be suitable – reflecting the customers
needs, priorities and circumstances – and not influenced by commission payments. "

wotsthat

Every contract has it's pros and cons.

Absolutely but I think we should welcome charge reductions irrespective of the investment vehicle to which they have been applied.

dunstonh

That's less to do with the riskiness of SIPPs per se and more to do with avaricious advisors moving unwary punters into SIPPs for commission, surely?
Per the FSA newsletter -

Thats not the only warning that has been issued. The commission issue is a smokescreen. You can get more commission transferring someone into a Norwich Union stakeholder pension than a SIPP.

The warnings issued so far on SIPPs, in addition to above, have been risk of cash fund being overused as individual forgets or doesnt realise they have to deal. Higher charges on SIPPs than stakeholder or personal pensions when the funds or investment choice doesnt warrent a sipp. i.e. picking a balanced managed fund in a SIPP or picking funds that are on a stakeholder at 1% but in a SIPP at 1.5%. Also, use of funds or investments that are not within the knowledge of experience of the individual has been highlighted although that could apply to any investment contract.

By pointing out some of the risks and negatives I am not saying they are wrong. However, you should proceed with caution and make sure a SIPP is the right option and dont assume it is because they are fashionable.