Stakeholder Pension (with salary sacrifice) vs SIPP

edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning
4 replies 1.3K views
BearWhiteBearWhite Forumite
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Hi,

I am currently paying into a stakeholder pension (Scottish Widows). My employer currently contributes 5% of my salary and I am allowed to contribute using salary sacrifice (so getting the NI benefits). All told this equates to about £1330 a month going into the pot.

While I am aware stakeholder pensions are probably not the best pension product, in order to get the salary sacrifice and employer contribution benefits I believe I have to use the stakeholder my company has provided.

I believe a SIPP will give me better range of funds to invest in (in particular funds with lower costs) but if I pay my money into a SIPP then I am going to miss out on what is free money from the salary sacrifice (as I will have to pay NI on the income before I can invest it). If I just match the 5% my employer will pay up to, and put the rest in a SIPP I calculate I will be £1320 a year worse off so it seems like a no brainer to keep everything in the stakeholder scheme.

Saying that the AMC of the cheapest funds in the stakeholder scheme are 1.0% (I havent been able to find TER figures) whereas it looks like trackers tracking the same benchmark could have TERs much lower than this if I had a SIPP. So I'm wondering if anyone has any advice / thoughts? Will the NI I save be more than the cost of the extra fees on the funds I have available through my stakeholder scheme? Also, do stakeholder pensions have administrative costs that I have to pay in the same way that a SIPP does?


Thanks

Replies

  • dunstonhdunstonh Forumite
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    Stakeholder Pension (with salary sacrifice) vs SIPP

    That is the two opposite extremes. There is also personal pension in the middle (less investment choice than a SIPP but better FSCS protection and some due diligence on the funds)
    While I am aware stakeholder pensions are probably not the best pension product, in order to get the salary sacrifice and employer contribution benefits I believe I have to use the stakeholder my company has provided.

    Yes to all that.
    I believe a SIPP will give me better range of funds to invest in (in particular funds with lower costs)

    But dont forget the SIPP charges. And fund charges should be looked at using the OCF vs the pension fund AMC. Modern personal pensions over £20k can come in at 0.4% (product and fund). The workplace pension will be capped at 0.75% but could be lower.
    Saying that the AMC of the cheapest funds in the stakeholder scheme are 1.0% (I havent been able to find TER figures) whereas it looks like trackers tracking the same benchmark could have TERs much lower than this if I had a SIPP.

    If its an auto-enrolment qualifying scheme than it cant be 1%. It may have been years ago but a cap was brought it. Plus, many stakeholder have fund based discounts on the gross charge or negotiated discounts. So, dont trust fund factsheets. Go by your own documentation.

    Pension funds only have the AMC. It is equivalent to OCF on unit trusts. TER is old hat and not really used any more.
    Also, do stakeholder pensions have administrative costs that I have to pay in the same way that a SIPP does?

    No. Stakeholders are required to be mono charged (i.e. a single charging method - AMC only).
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • zagfleszagfles Forumite
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    Some workplace pensions will allow partial transfers out, so you could get the best of both worlds - pay into the workplace scheme and get the company contributions and NI relief and then periodically transfer out to a SIPP. Might be worth asking about this - sometimes the scheme allows it but they don't advertise it. Just make sure they understand it's a partial transfer out you're after and you still want to carry on paying into the scheme!

    And yes some trackers have very low OCFs - some as low as 0.1% or less, there'll be a platform charge on top but it would still likely be cheaper overall.
  • jamesdjamesd Forumite
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    It's worth staying in to get the employer matching and NI benefit. In the short term that will beat anything you're likely to achieve from better fund selection.

    As zagiles wrote, check about partial transfers out. I just asked my place when they were setting a new scheme up and they added that capability to a provider that doesn't offer it as a standard feature. If not possible then you may be able to opt out then opt back in again next month to a new account and transfer the old one whole.
  • BearWhiteBearWhite Forumite
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    Thanks for your replies all, much appreciated. I'm going to ask for clarification on the fees that are being charged currently as well as about the partial transfer out.

    Cheers
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