Self Invested Pension

dunstonh

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.

You are not comparing like for like. You are comparing the SIPP wrapper with a stakeholder wrapper and fund.

http://www.sippdeal.co.uk/download_files/sdl/sippdealFL.pdf shows the funds they have in-house. All have annual managment charges and many still have initial charges.

If you compare a stakeholder and fund(s) against a SIPP and fund(s), the SIPP will be more expensive and have higher reductions in yield due to charges as shown on the FSA tables. Most Stakeholder pension providers havent utilised the extra 0.5% yet so you can ignore that.

Sippdeal also appear to have no large fund discounts so it appears they are targetting the medium size funds of 30-50k.

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.

No, on the stakeholder pension it would be zero. The charge is not on the wrapper but the fund remember. Also remember that there is an initial charge at sippdeal of 0.5% on the wrapper.

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

Nope, again the stakeholder is zero. So at this stage the stakeholder is still cheaper.

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.

Guess what? Stakeholder is still zero charge. Sipp is costing you more and more.

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.

Exactly. So the stakeholder wrapper is cheaper than SIPP as mentioned above. There cannot be an initial charge on stakeholder funds and most personal pension funds dont have one either nowadays.

The important thing here is to compare like for like. You seem to be not including fund management charges with the SIPP yet including them twice with the stakeholder. Like for like, the stakeholder is cheaper than SIPPdeal.

EdInvestor

Hi dunstonh

I think you're forgetting that you have to add the TER(total expense ratio) of the underlying funds to the annual management charge (AMC)of the pension wrapper to arrive at a total charges amount.

You can check the TERs here:

http://www.investmentuk.org/investors/find_fund/ter.asp

They are the same for all wrappers (Sipp or stakeholder/PP) , but Sipps will usually rebate the initial charge - and maybe PPs will too these days.

I've ignored them because they are effectively the same for both cases.

Pal

Editor wrote:

I think you're forgetting that you have to add the TER(total expense ratio) of the underlying funds to the annual management charge (AMC)of the pension wrapper to arrive at a total charges amount.

No you don't. The TER already includes the annual management charge, otherwise it wouldn't be a TER. The link you provided states that.

The AMC of the pensions wrapper always includes the annual management charge of the underlying funds you are selecting as well. There is no double counting. A SIPP however has specific SIPP management charges and dealing costs in addition to the underlying fund charges.

Which one is cheaper depends on which fund you are choosing, and whether the SIPP or stakeholder provider has any special deals on that fund. In theory however a SIPP will always be more expensive because you are accessing largely the same funds as a personal pension but doing so through a system that is designed to let you actively trade funds and individual investments. The SIPP investor has to pay for that additional software and maintainance, whereas a stakeholder or personal pension holder does not.

I dare say there may be a few rare examples where a SIPP provider has managed to swing a better deal than a stakeholder or normal personal pension provider for the same investment fund, but I am willing to bet it is rare.

This is why I always say that SIPPs are only really useful for people with very specialised investment needs or those who simply want to actively trade (gamble) with their pension savings. For the vast majority of people, a normal stakeholder or personal pension accessing larger funds that are held for a reasonable amount of time is all that is required, and is likely to be cheaper and easier to use.

EdInvestor

Hi Pal,

I guess we'll have to agree to disagree on this one, but I'll leave it with this quote from the report by the Pensions Commission into the reasons for the pensions crisis:

It is important to identify all the costs that stand between the rate of
return in the wholesale markets (which we presented in Figures 3.52-3.54
Chapter 3), and the return which the individual saver receives. These
come in two forms:
– Explicit costs charged by the pension provider or overtly paid by the
scheme trustee/administrator in an occupational scheme. These cover
the costs of sales and administration, as well as fund management
fees. For personal pension contracts, regulation requires that these are
explicitly revealed.
– The implicit costs (the cost of dealing incurred by fund managers)
which reduces total return, but which is not explicitly revealed.

Page 10 of the Pensions Commission report

The report notes (on page 1) that between 20 and 30% of the total pension fund goes in charges and this is a major barrier to boosting people's retirement income.I quite agree.

BTW I have met IFAs who I believe genuinely did not know about these extra implicit charges, presumably because their is no FSA requirement to reveal them.

Pal

There are always going to be unknown and unpredictable charges within any investment fund, whether through a SIPP or a PP or a stakeholder. These include trading commissions, custodian charges, stamp duty, admininstration charges and so on, many of which cannot be predicted in advance.

The total expense ratios are designed to try and predict these charges, although they usually exclude the trading commissions and stamp duty because you cannot predict the number of trades that a fund will make in advance. There are new rules being introduced to make the TER's part of the normal disclosure requirements for all investment funds.

Anyway, you appear to have missed the point that I was trying to make:

In a stakeholder where you invest in an in-house fund you pay the AMC plus underlying costs for operating the fund. Some of this AMC is used to cover the costs of operating the administration systems of the provider.

In a stakeholder where you invest in a guest fund, the guest manager receives their AMC (which may be lower due to a bulk purchase deal) and the investor pays that, plus the underlying costs for operating the fund, plus a small amount to the stakeholder manager to cover the administation, sales and support function for someone else's product. This is why AMCs for guest funds are usually a bit higher than in-house funds.

The charges paid through a SIPP provider is EXACTLY THE SAME as using a Stakeholder to access a guest investment fund, except that you may have to pay more for the additional administration capabilities of the SIPP i.e. the ability to invest in more funds, to trade in and out online, to buy individual stocks and so on.

In your analysis you stated that the SIPP provider's only charges were £15 a year. In practice they will have charged you a trading fee as well when you bought the fund, and you will still be paying the AMC and other expenses of whatever fund you have invested in.

The AMC's for SIPP accessed funds may also be higher than a stakeholder because it is more difficult for them to negotiate a better deal with the investment houses, due to lower volumes and not being able to offer access to their own in-house funds in return.

In practice you need to look very closely at the charges from both methods before investing. It is possible in theory that a SIPP provider may offer a better deal than a large stakeholder provider for the same fund, but I doubt that it happens very often. The SIPP provider is just another company between the investor and the unlying investments who is taking a cut of the money, and the fact they they offer increased functionality for self-trading MUST make their systems more complex and costly to run. And guess who pays for that?

EdInvestor

In your analysis you stated that the SIPP provider's only charges were £15 a year. In practice they will have charged you a trading fee as well when you bought the fund, and you will still be paying the AMC and other expenses of whatever fund you have invested in.

I included the trading fee in the first year's Sipp costs.You only pay it when you buy and sell, not every year.

The charges on the underlying fund should be the same as with a PP, rebates we've already discussed.

#The all-time cheapest way of investing as far as I've discovered, is to buy a portfolio of high dividend blue chip shares in a low cost SIPP and just leave them there. The Sipp will accumulate the dividends (5% a year) free for you in the cash account and you can reinvest them in more shares once or twice a year. That'll cost you about 50 quid or so a year, (including the silly projection letter)regardless of how big your pension fund is. Bargain - all the capital growth and all the divis go to you :).

You can't do this in a stakeholder/personal pension, so we don't have to argue about it, do we?

Pal

I agree with that. If you are happy to invest in individual stocks and take the management decisions and risks yourself then that is the way to do it. You are of course reliant on the provider not introducing an inactivity fee in the way that selftrade and others have done, but that is unlikely to be a major issue.

However I thought we were discussing investing in investment funds?

EdInvestor

Pal wrote:

However I thought we were discussing investing in investment funds?

Actually the OP asked should she move her company pension into a SIPP.We're really awaiting more info from her about what kind of company pension etc. The issue is IMHO not so much SIPP vs PP/stakeholder ,but whether the pension should be moved.

With a one off lump sump I'd usually back a cheapo SIPP, assuming the move itself is sensible.SIPPs are less easy to justify for regular savers - though frankly I'm inclined to think a saver who put his money onto a high interest account until it reached an optimal level and then moved it into the SIPP in a single contribution picking up the tax relief before investing it, would probably do fine.:)

dunstonh

Actually the OP asked should she move her company pension into a SIPP.We're really awaiting more info from her about what kind of company pension etc. The issue is IMHO not so much SIPP vs PP/stakeholder ,but whether the pension should be moved.

And that is never going to be answered here. Pension transfers are a high risk advice area and anyone going to a website for advice isnt going to get any. At least no advice that is legal. Some IFAs will not deal with pension transfers because of the high risk nature.

EdInvestor

Pension transfers are a high risk advice area and anyone going to a website for advice isnt going to get any.

They may be high-risk to an IFA, but not to a website like this which doesn't give "advice" in the regulated sense of the word.

With a company pension, it's usually deemed a bad idea to move a "final salary" company pension ( though not in every case), but it's a different question with a money purchase pension.And a Group Personal Pension set up by a company is really only a personal pension in disguise - many people should move old PPs stuck in poorly performing funds with high charges so as to get a better deal.

There's no reason why Moneysavers shouldn't get info here about pension transfers and then consult an IFA later if appropriate for regulated advice, is there?Of course, not all IFAs will do pension transfers, not because of the risk, but because they don't have good enough exam qualifications.Only senior IFAs are allowed to advise in this area.