Self Invested Pension

flier

Can anyone tell me where I can find out more about this type of pension?

I'm about to stop work to be a stay at home mum for a while and have been told that I can transfer my company pension schemes to this type of investment.

So, I need to find out some more to determine if this would be right for me

Thanks in advance

dunstonh

Look up SIPP on google. Loads of responses.

SIPPS are geared towards larger fund values/savings. Typically ideal for those who pay £300pm or have have £30k pension funds. If you dont use the real advantages of SIPPS, you can find the charges more than a personal pension or stakeholder pension.

If you want to invest your money in a range of external funds or have unusual investments, then the SIPP is ideal. If you are just going to use it to invest in insured funds which are available in personal pensions, then it will probably cost more (depending on fund value).

EdInvestor

A SIPP costs more at the start in set-up charges than a PP. But if you choose one of the low cost eSIPPs with no annual charge, they soon become very cost effective even for quite small funds.I can personally recommend Sippdeal, one of the leading providers.Very good service.
https://www.sippdeal.co.uk

A low cost SIPP is essential if you want to invest directly in shares, but is also cost effective for funds, as the providers normally offer a very large range and rebate the charges, like a discount broker. The more expensive SIPPs are for those who want to buy property.

Just one note of caution: the company pension you mention, what type is it? It's usually not seen as sensible to move a final salary pension to a SIPP though this doesn't apply in all cases.

Paul_Varjak

Hargreaves Landsdown (HL) has no set-up charges whatsover for its SIPP. There are initial charges for any underlying funds you may put into the SIPP but even these are usually rebated (sometimes 100%).

For those funds that do not offer renewal commission, then charges will be levied to manage the SIPP, otherwise management of the SIPP.

Unfortunately, regulations prevent HL from refunding any of the annual commission they may receive for funds held inside a SIPP (they often refund part of the renewal commission for funds held outside of a SIPP).

If you put shares into your SIPP, charges will be levied of course as HL would not then receive renewal commission.

Pal

It is well worth speaking to an IFA before transferring out of any company pension scheme. It is often preferable to leave the pension behind and start a new one up for future contributions somewhere else.

Titan

I would not advise anyone to jump into a sipp if they have a small fund, it will most probably be eaten up by all the different fees that apply.

I consider a minimum fund for a SIPP to be in the roundabouts of 100K, and esipp maybe half of that, if you are not going to take benefits that is. In the case that you want to take benefits it will become a lot more expensive as these eSIPPs are sorta like the "pay as you go" of the self invested pensions...

In all, do not transfer in to a SIPP before carefully looking at it's charges and making sure your fund is worth the hassle. As I said, it is easy for a whole fund to be lost just in fees

EdInvestor

Hello Titan

I'd be interested to see some evidence of what you claim in re low cost E-Sipps.The opposite is the case in my personal experience.

Posters should note that low cost E-Sipps are execution-only products which do not pay commission to outside salesman/IFAs etc.That's why they are cheap

Thus outside salesman will not normally recommend them, as there is nothing in it for them (unless you are paying them a fee). The salesmen may recommend the expensive Sipps which may indeed pay commission (which is one reason why they are expensive) and it is certainly the case that expensive Sipps are not suitable for small funds.

Regarding taking benefits, a low cost Sipp can be by far the cheapest way to take your pension as income drawdown, depending on the way you invest the fund.
T

dunstonh

Thus outside salesman will not normally recommend them, as there is nothing in it for them (unless you are paying them a fee). The salesmen may recommend the expensive Sipps which may indeed pay commission (which is one reason why they are expensive) and it is certainly the case that expensive Sipps are not suitable for small funds.

The main issue with smaller funds is RU64.

Sippdeal has charges littered all over the place (like many sipps). These charges would not appear on a stakeholder pension. To comply with RU64, sufficient justification would need to exist to recommend a SIPP over a stakeholder. For larger fund values, those charges would make little impact and wouldnt be an issue (if using external investments. Would still be awkward potentially if using internal investment funds). For smaller fund values, they would impact more and to be honest, it wouldnt be worth the risk of falling foul of a future potential complaint.

If an IFA was to recommend a SIPP which didnt use external investments, they run the risk of future potential mis-sale complaints unless there is a good reason for doing so. These reasons can exist as some SIPPs have large fund discounts which can make them cheaper than stakeholders.

BTW, for reference on your comment about IFAs using more expensive providers, IFAs can arrange a sipp offering better terms than SIPPdeal and still take commission.

EdInvestor

Sippdeal's charges are quite transparent.They are almost all at setup.After that, there is no annual fee at all, so in the first year or two of course the Sipp will appear more expensive than the 1% or 1.5% (as now) stakeholder - but the longer the pension goes on, the cheaper it gets until there is no comparison at all.Certainly over the 20 or 30 year life of a pension the Sipp is incomarably cheaper than the tens of thousands of pounds you have to pay on a conventional pension even a stakeholder.Check these charges out below, they are quite shocking IMHO.

https://www.fsa.gov.uk/tables

BTW what's your definition of "small fund"?

dunstonh

£100 set up, £15 per transaction, £15 per statement. £85 for transfer in. 0.5% initial charge

Transfer out penatly of £50 plus £10/£20 per holding.

On retirement £75 to set up benefits. £75 to pay tax free cash, £10 per income installment, £75 on death, £75 to purchase annuity.

None of the above charges apply on a stakeholder and most personal pensions.

Both the SIPP and stakeholder/personal pensions have annual management charges which you can assume will be between 1 and 2% p.a.

You are misreading the FSA tables if you believe that you will be paying less in charges on the SIPP than a personal/stakeholder pension. My guess is that you are forgetting the AMC on the underlying investments which is where most of the charges go. Therefore you are not comparing like for like.

If you compare wrapper to wrapper, the stakeholder (and most modern PPPs) are zero cost. The charge is built into the annual management charge. The SIPP is not zero cost (as shown above) and then you have the annual management charges of the investment funds on top of that.

A small fund is one lower than say £30-50k. I wouldnt consider a SIPP for under 30k under current RU64 rules (or at least i would need a damned good reason to).

EdInvestor

Both the SIPP and stakeholder/personal pensions have annual management charges which you can assume will be between 1 and 2% p.a.


Nope.Sippdeal most certainly doesn't have an annual management charge.Once you have put the money in and invested it, you pay 15 quid a year for the FSA's (useless) projections illustration, which they are forced to provide, plus VAT.

But that's it. On, say, a 20k fund, I make that 0.09%.It's negligible. Your new stakeholder investor at 1.5% is paying 300 quid a year.

In year 1 it's 283 quid for the Sipp versus 300 quid for the stakeholder on the basis the 20k is invested in 2 funds.

In year 2 it's 15 quid for the Sipp versus 300 quid for the stakeholder, so you're 285 quid ahead.

By year 3 let's say the fund has grown by 15% and is now worth 23k.With the Sipp you're still only paying 15 quid a year for that silly illustration, but your stakeholder provider is now charging you 345 pounds.

So your saving has gone up to 615 pounds.

And so it goes on....

As for the charges on the underlying funds, you would pay them anyway regardless of the wrapper used.Most low cost Sipps rebate initial charges.