Children's Stakeholder

brian57

For some time I have been contributing to each of my two daughters' Stakeholder Pension Funds. Each of the Funds is invested (£300 pm incl. £60 tax uplift) as to 50% in a UK tracker and 50% in a US tracker. The Fund for each daughter is now of a size (>£60k) when the charges, which are based on Fund size, are beginning to be significant i.e. c.£400pa each and of course these will only grow.
My thought is to transfer to e.g. a SIPP with AJ Bell and hold in each fund two ETFs which again match the UK and US indices. To further reduce costs I would move to an annual equivalent contribution i.e. £3,600. Since I believe the cost of a AJ Bell SIPP is c. £250 pa regardless of size, my total per annum cost would be £269.90 (£250 + 2* £9.95 dealing cost).

Any views on the principle?

westy22

Have you considered a Hargreaves Lansdown SIPP? If you were to hold 2 trackers i.e. a Vanguard UK tracker and a Vanguard US tracker then you would only incur a cost of £2 platform fee x 2 trackers x 12 months = £48 per year per child.

The Vanguard trackers are well respected, good tracking error and very low cost. You would still be able to contribute monthly as you do now.

PS HL often offer cash incentives to transfer pensions in to them.

dunstonh

I would think a personal pension offers better value at this time than the SIPP you are looking at.

You need to look at your investments as well as 50/50 in a UK & US tracker is not great investing. Two economies doesnt give you much diversification.

westy22

dunstonh wrote: »

You need to look at your investments as well as 50/50 in a UK & US tracker is not great investing. Two economies doesnt give you much diversification.

I agree that such a split would not be my personal choice for a presumed 40+ year investment. I would rather have my net cast wider to catch a bit of the future growth economies.

I have been using Vanguard LS 100% equity exclusively for my daughter's SIPP. My total % cost including platform fee on HL is about 0.41% per annum and I have been pleased with the performance since its launch.

brian57

Thank you for your answers.
I want to concentrate on the Stakeholders question at the moment, since they are a relatively minor part of my daughters' total portfolios - the balance is in a portfolio of (diversified) Investment Trusts.
Not sure that I can reconcile the £48 pa in HL in the first reply with the 0.41% in the second.

Regards

brian57

@dunstonh

Need to understand in what way a Personal Pension is better value than a SIPP.
Regards

bigadaj

brian57 wrote: »

@dunstonh

Need to understand in what way a Personal Pension is better value than a SIPP.
Regards

Personal pension normally allows you to invest ina wide range of funds, SIPPS are generally more costly but offer additional investment options, such as commercial property, if you don't. Need the extra features then there's no point paying for them.

westy22

brian57 wrote: »

Not sure that I can reconcile the £48 pa in HL in the first reply with the 0.41% in the second.

Regards

They are not related:-

The £48 is the charge HL would make to you per annum for holding 2 x Vanguard funds in their SIPP on their platform. You would, of course, pay an annual ongoing charge to the fund on top of this.

The 0.41% pa illustrates what I pay in total charges for having one Vanguard LS fund in my daughter's SIPP. This is made up of £24 pa for one platform fee and the 0.33% ongoing annual charge for the Van LS 100%.

westy22

brian57 wrote: »

Need to understand in what way a Personal Pension is better value than a SIPP.
Regards

I would also be interested to hear which PP could better a total annual charge of 0.41% pa . I know that some PPs are able to achieve a 0.10% ongoing charge on some tracker funds but when an annual platform charge and, in many cases, adviser fees are added on, they will invariably come to more than that, unless we are talking about a fund of £100k plus.

I would be delighted to be proved wrong as I'm always up for saving some money!

FatherAbraham

brian57 wrote: »

For some time I have been contributing to each of my two daughters' Stakeholder Pension Funds. Each of the Funds is invested (£300 pm incl. £60 tax uplift) as to 50% in a UK tracker and 50% in a US tracker. The Fund for each daughter is now of a size (>£60k) when the charges, which are based on Fund size, are beginning to be significant i.e. c.£400pa each and of course these will only grow.
My thought is to transfer to e.g. a SIPP with AJ Bell and hold in each fund two ETFs which again match the UK and US indices. To further reduce costs I would move to an annual equivalent contribution i.e. £3,600. Since I believe the cost of a AJ Bell SIPP is c. £250 pa regardless of size, my total per annum cost would be £269.90 (£250 + 2* £9.95 dealing cost).

Any views on the principle?

The principle sounds fine.

I shall now proceed to make a series of probably banal points which you've probably already got covered:

• I'll just confirm, as you have already said, that your dealing-charge calculation for the SIPP looks like it's once per year, rather than the one per month which you mentioned for the stakeholder. Probably no significant difference over the investment timescale you're talking about.
• You haven't said anything about rebalancing the portfolio, to maintain the 50/50 split between UK/US. Rebalancing is necessary to get the long-term risk-return characteristics of diversification
• Once one considers rebalancing, then a single fund which itself encapsulates the diversification you seek (e.g. a fund of trackers) might look attractive
• You haven't explicitly included the ETFs' costs in your comparison (although it's unlikely to change the outcome qualitatively)
• Somehow, a SIPP has to have access to liquidity to pay charges, whereas funds in stakeholders can pay charges by cancelling units. If there were to be a period between you no longer running the pension wrappers on behalf of the girls, and the funds being used to provide an income, where a beneficiary were not liquid enough to be able to pay the SIPP fees, some non-optimal disinvestment and penalty charging might occur.
• Your costs are going to go up, because the SIPP fee will be external to the funds, even though the overall cost/benefit of the arrangement improves. Of course, this lets you maximize the tax-relieved bennies.
• Er, ... that's all I can think of right now

Warmest regards,
FA