SIPP "too expensive" - Why?

MotT

Hi All,

Very often in this forum, I come across people stating that SIPPs are "too expensive". Does this, in your opinion, also apply to this option:

Sippdealxtra's (http://www.sippdealxtra.co.uk/charges.asp) administration fees are £100 p.a. for when you hold less than £25,000. If this money is solely invested in iShares or similar tracker funds there's hardly any annual management fees.

In your opinion, can this be beat by any offer a Financial Advisor can make?

Have a great weekend,

MT

dunstonh

Very often in this forum, I come across people stating that SIPPs are "too expensive".

Generically, on a like for like basis, the SIPP is typically more expensive than a personal pension. However, as more personal pensions become more SIPP like and SIPPs are getting cheaper, it is not as great as it once was.

Sippdealxtra's (http://www.sippdealxtra.co.uk/charges.asp) administration fees are £100 p.a. for when you hold less than £25,000. If this money is solely invested in iShares or similar tracker funds there's hardly any annual management fees.

Or you can have a personal pension costing £68.50 a year with index trackers of 0.2%-0.3%. Or a personal pension with 0.4% p.a. including fund costs.

In your opinion, can this be beat by any offer a Financial Advisor can make?

A financial adviser can access cheaper products but then you have to pay for the cost of the financial adviser. Its not really comparing like for like. A product designed for retail via the IFA distribution channel will be clean priced but have the cost of advice added on top. A product designed for retail DIY will have the product charges and the retail charges combined. Also, you tend to find adviser retailed products have less explicit charges and are more packaged as solutions (so you dont get charged on death on pension holder, transferring in or out etc). So, it is difficult to compare the two directly. Generically, a DIY product should be cheaper than an adviser retailed product including cost of advice. It isnt always and the difference is not always great but it is something you should expect.

MotT

That's very useful. Thank you!

TH1878

dunstonh wrote: »

Or you can have a personal pension costing £68.50 a year with index trackers of 0.2%-0.3%.

Not any more! Minimum cost of £100 on Skandia now but the cost of the trackers has gone down. The TER on HSBC American Index went down from 0.29% to 0.13%.

dunstonh

TH1878 wrote: »

Not any more! Minimum cost of £100 on Skandia now but the cost of the trackers has gone down. The TER on HSBC American Index went down from 0.29% to 0.13%.

I dont use them much now. They were cheap but it was beginning to show in service and software. I guess that is where they were/are saving their money.

I'm not so much for going with cheapest as maybe I once was. You have to price in service quality and software offering and give that a value for money consideration.

brasso

I don't understand in what sense a SIPP is "expensive"?? A SIPP itself doesn't really cost anything apart from platform fees, which will vary, but which don't amount to much in relation to most people's pensions pots.

Of course, there are charges for individual investments but you would pay these whether they are in a SIPP, an ISA or just a bog-standard share-dealing fund. In fact you would also pay platform fees for these too.

A conventional personal pension will also attract charges, no?

Not sure I understand this at all.

Aegis

brasso wrote: »

I don't understand in what sense a SIPP is "expensive"?? A SIPP itself doesn't really cost anything apart from platform fees, which will vary, but which don't amount to much in relation to most people's pensions pots.

This depends on the SIPP - there are some out there that charge over £500 + VAT each year, which as a fixed cost could be an enormous drag on a smaller pension. For pensions with only percentage based charges (and preferably low percentage based charges) or very low fixed platform fees with additional costs for specific transactions.

With right plan for the right portfolio, there's no reason SIPP wrappers actually have to cost much at all over standard unwrapped accounts.

grey_gym_sock

well, SIPPs often won't give access to the lower-cost institutional fund classes which a pension bought via an IFA would. the platform review may change this, in return for higher platform/SIPP fees.

whether it's worth paying an IFA, when you want to DIY, in order to get access to low TERs, i'm not sure. the more you have to invest, the more likely it is to be worth it. if it isn't worth it, it's really comparing apples with oranges.

brasso

Aegis wrote: »

This depends on the SIPP - there are some out there that charge over £500 + VAT each year, which as a fixed cost could be an enormous drag on a smaller pension. For pensions with only percentage based charges (and preferably low percentage based charges) or very low fixed platform fees with additional costs for specific transactions.

With right plan for the right portfolio, there's no reason SIPP wrappers actually have to cost much at all over standard unwrapped accounts.

But if you had a small pension pot and wanted to DIY, why would you voluntarily pay an unnecessary £500 a year? Are you saying that you get charged this without receiving anything in return?

This sounds like an argument not against SIPPs, but against SIPPs which include a high annual fixed cost.

brasso

grey_gym_sock wrote: »

well, SIPPs often won't give access to the lower-cost institutional fund classes which a pension bought via an IFA would. the platform review may change this, in return for higher platform/SIPP fees.

whether it's worth paying an IFA, when you want to DIY, in order to get access to low TERs, i'm not sure. the more you have to invest, the more likely it is to be worth it. if it isn't worth it, it's really comparing apples with oranges.

I don't know what these "lower-cost institutional fund classes" are -- they sound like the sort of opaque concept that SIPP enthusiasts want to escape from. And as you rightly say, to pay an IFA in order to access a lower cost fund seems like very muddled financial management to me.

jem16

brasso wrote: »

I don't know what these "lower-cost institutional fund classes" are -- they sound like the sort of opaque concept that SIPP enthusiasts want to escape from.

Quite the opposite in fact. They have been introduced to make charges clear.

Under RDR (now in place) and the Platform review (by end of this year), funds must show all charges explcitly. So for the normal bundled fund with AMC of 1.5% this includes 0.75% for the fund manager, 0.25% for the platform and 0.5% for the IFA.

Fund houses that deal purely with IFAs on advice cases must show the charges explicity now. The fund houses are now moving to providing clean class pricing with the funds at 0.75%.

Once the Platform review is in place, all funds are likely to be priced this way. So you will pay for the fund, plus the cost of the platform plus the IFA if appropriate.

And as you rightly say, to pay an IFA in order to access a lower cost fund seems like very muddled financial management to me.

It's just that at the moment the IFA platforms are mostly ahead of the DIY platforms.