Aviva pension vs SIPP

ishmeister

I'm going to restart payments to a pension after having moved jobs. My existing pension is (or was) a group policy with Aviva with a reduced "annual fund charge" of 0.4% (reduced from 0.9% for being a group policy). I called and they confirmed that commission payments to the company IFA that set up the policy will be cancelled as the policy is "paid up". They also confirmed that I will retain the 0.4% charge when I restart payments. If I stick with the policy and lifestyle fund, there don't seem to be any other charges that I can make out.

I have about £12k invested in there at the moment, with £5500pa contributions to start up again.

The alternative I considered was a SIPP with Vanguard Lifestrategy Fund (passive wrapper, diversified and index tracking).

0.24% initial investment charge
0.31% annual charge
0.2% platform charge (on hargreaves lansdown for £12k)
---
0.75% year 1
0.51% year 2+

Are there other costs I should be looking out for? Is there still any advantage with going the SIPP route? I read that 80% of managed funds underperform the average return of the stock market - should that be a consideration in this decision?

dunstonh

My existing pension is (or was) a group policy with Aviva with a reduced "annual fund charge" of 0.4% (reduced from 0.9% for being a group policy). I called and they confirmed that commission payments to the company IFA that set up the policy will be cancelled as the policy is "paid up". They also confirmed that I will retain the 0.4% charge when I restart payments. If I stick with the policy and lifestyle fund, there don't seem to be any other charges that I can make out.

Seems logical as the current new business personal pension offered by Aviva is 0.4% clean with full discounts.

Are there other costs I should be looking out for?

Yes. HL have to change their charges in the next 12 months.

I read that 80% of managed funds underperform the average return of the stock market - should that be a consideration in this decision?

No. That is wrong. Or at least not in context. The vast majority of managed funds are lower risk than the stockmarket. So, over the long term you would expect them to underperform. However, the average UK consumer doesn't have the risk tolerance for the volatility that goes with investing 100% on the stockmarket.

Trackers consistently underperform their benchmark. They give you mid-table consistency on a discrete basis. That means say on 1 year performance, a FTSE UK tracker will be around the middle of the performance table. Half the funds will be above. Half the funds will be below. A lot of those funds will have different objective to an all share tracker. Depending on where we are in the economic cycle, some of those funds will outperform. Some will underperform. Some are passive managed (ideally eliminate them as no point paying more for something like that). Some are issued by companies that you know do not put the resources in and never really aim for outperformance. So, you can eliminate them.

As you go over a longer period some funds that performed well in one period may not the next. So, they bounce around the performance table. The mid table consistent discrete performance of the trackers means that as you go further over time, the trackers can move up the table on cumulative performance as the weaker managed funds fall by the wayside.

Active investors will go by discrete performance typically as they will move around to suit the economic cycle. Lazy investors don't do that. So, they are better off using trackers. However, lazy investors are actually best using portfolio funds rather than trying to work out their own asset allocation (and being lazy investors, they typically dont rebalance). The vanguard lifestrategy fund is a portfolio fund. There are managed portfolio funds. Only the vanguard 80% is a wide portfolio fund (still lacks property but thats all). The rest are lacking in sector coverage. That doesnt make them unsuitable but it does mean you are compromising a bit. So, in these cases, a managed portfolio fund could be more suitable.

The pro-tracker camp rely on US data and tend to be really anti managed (US data is flawed in the UK due to taxation differences). The anti-tracker camp tend to pick on tracker weaknesses and wont consider them at all. Keep a balanced view and use whichever is best to suit the objective as there are plenty of times a tracker is best or a managed is best. Investing style is the key consideration.

InsertWittyName

I have both of these pensions.

When my company pension scheme moved from Aegon to Aviva recently I transferred my existing Aegon funds to Vanguard Lifestrategy (60% acc) with HL.

So my monthly company contributions go into Aviva and any extra personal contributions I wish to make go into HL.

Works well for me.

ishmeister

Thanks.

@dunstonh, I would be mostly a passive investor but planned to be always fully invested come rain or shine (having read book from sippbook.co.uk). That is the investing style I had in mind - hoping to average out over the long term. I was also planning to reduce my exposure to the stock market every few years to manage down the risk. I think aviva will switch the fund entirely 5 years before retirement.

Some more (probably flawed) calculations show that I need £30k in a SIPP to match the aviva plan on a yearly basis in cost terms:

At £30000
SIPP £72.0000 initial investment charge
SIPP £96.0000 annual charge
SIPP platform charge £24 = 0.0800%
SIPP £192.0000 total charge year 1
SIPP £120.0000 total charge year 2
AVIVA £120.000 AMC at 0.4%

I plan to double my contributions next year, so I think it might make sense to wait until I have a larger pot before deciding to go the SIPP route.