SIPP worth it for me?

andy013

Hey, I am considering getting a Hargreaves Lansdown SIPP and putting £40 a month into the Vangaurd LifeStrategy 80/20 fund. I just want a set and forget easy fund that I could put money in each month and let it grow.

I just wanted to get others opinions on this. The biggest issue I can see is that HL charges £2 per month for the fund. But I figure if I just keep regularly contributing then that money will always be taken off from the tax relief. I don't think it would be wise to leave the fund with a low amount of money in it though as that £24 a year would eat into the interest quite a bit.

I also considered getting a S&S isa instead, but the SIPP seems to make more sense with the tax relief. This is a long term investment anyway.

I'm still looking into my employers options and if they turn out to be better I will put money towards them first of course.

InsertWittyName

£40 per month is quite low considering the high (as a percentage) platform fee of £2.

This is probably worth a read: http://monevator.com/how-to-invest-on-a-budget.

I also have a HL SIPP with the Vanguard LifeStrategy 60% fund, but I have £36k in it so the £2 platform fee is low for me.

andy013

I think that article is outdated since most platforms seem to charge a fee for holding index trackers now. I do have a little bit of money in a cash ISA that I could transfer over as a lump sum to start with. I don't know how much difference it would make though.

I am also considering just going with a S&S isa now, since I will get taxed on income in retirement anyway, I may as well keep access to my money rather than locking it away. I guess the 25% tax free lump sum might give me an extra few thousand but it doesn't seem like big a deal. What are other peoples opinions on this, is it worth it for a 20% tax payer to take out a SIPP over an ISA?

jem16

andy013 wrote: »

is it worth it for a 20% tax payer to take out a SIPP over an ISA?

Higher rate tax relief - definitely. Basic rate tax relief and likely to pay basic rate tax in retirement I would consider a S&S ISA.

Basic rule is to use pensions to use up the tax-free personal allowance and then S&S ISA after that for flexibility.

webnibbler

andy013 wrote: »

I am also considering just going with a S&S isa now, since I will get taxed on income in retirement anyway, I may as well keep access to my money rather than locking it away. I guess the 25% tax free lump sum might give me an extra few thousand but it doesn't seem like big a deal. What are other peoples opinions on this, is it worth it for a 20% tax payer to take out a SIPP over an ISA?

The question is whether the 25% tax free lump sum will still be there in 20 / 30 years time - it's anyone's guess. I suppose you can only work with what you know now.

To me it's about creating a diverse range of income streams in future which will take the pressure off from your job as the sole source of income. So I pay into both a SIPP, S&S and cash ISAs. I guess you could view it as a way of reducing the risk of future changes, particularly by them pesky government types .

andy013

I realize now though that I can put the money in a S&S ISA and then in the future I could transfer it into a SIPP if it works out I would pay less tax that way. That seems to make the most sense since I'm keeping my options open and not locking down my money. Since I have a low amount of cash I don't want to have both open at the same time since that will double the fees.

jamesd

It's better to use funds that don't have that platform fee until you have enough money accumulated to make the platform fee only a small part of the cost. No point in paying a fee that high to save say a 0.25% difference in annual management charge when you don't have much money invested. You can switch later, when there's enough money involved for it to be cheaper to use a lower AMC fund with platform fee.

andy013

I thought all index trackers had the platform fee?

I could transfer over about £2000 as a lump sum to start with and then put in £50 a month after that.

grey_gym_sock

andy013 wrote: »

I thought all index trackers had the platform fee?

if we're just talking about HL, all the best (cheapest) trackers do, but there are some more expensive (higher TER) blackrock trackers which don't. for smaller amounts invested, it can be cheaper to go for the higher TER with no platform fee. (and switch when you've built up more money invested.)

however, there's no real equivalent to the lifestrategy funds without a platform fee. though you could approximate it with a combination of trackers without platform fees.

jamesd

Not all of the trackers at HL have platform fees. Better to use a mixture to keep costs low while you're in the early stages of accumulating, perhaps starting out with a global tracker.

andy013

Would it really make a significant difference? Aren't we talking about 0.5% over a couple of years?