Wanted - Framework for thinking about a SIPP question

Ozymandius

I am currently being advised by my IFA to combine three of my insured personal pension funds into one SIPP. There is an initial charge of £200 from the SIPP administrator and an initial fee of 2% (apprx £2,000) for the transfer work and setting up the investment portfolio within the pension .

I am advised that:

... "likely to get best returns using a SIPP and appointing a fund manager that looks after your funds for you, over standard insured personal pension schemes that have low costs but where the fund management would be passive" ...

I am happy with my IFA, however, I am uncomfortable with the argument used to justify a transaction which -IMHO- has high upfront costs.

I am moderately financially literate but not an "investor" by trade or nature. I would be investing through a fund managed by the IFA, so I am unsure what benefits I would be getting from "active management" that I don't already receive from investing through a pension fund.

I was hoping that this forum could give me a structured approach to thinking about this situation and perhaps some clear advice on "good questions" to be asking, and factors to consider, to ensure that I am taking a decision in "my best interests".

In case it is helpful I have outlined my current circumstances in more detail below:

Age : 42 (male, married)
Occupation : professional
Current pension pot : apprx £110K (excluding a small final salary scheme and contracted out SERPS)
Ongoing funding : approximately £20K per annum (although for the next 5 years this will be not be into the £110K fund as I am now working abroad)

Liz_the_Whizz

Ozymandius

We are going through a similar process at present with my DH's pension, and same niggle over charges.

I'm sure one of the gurus will give you the structured qs you need, but one thing we found helpful was to look at the Hargreaves Lansdown SIPP as a benchmark, then to ask "what more do you get by paying set up fees and annual changes for an IFA recommended product?"

If the answer is, you get more value by paying more, then you have an answer to your worry on fees.

If the answer is you pay more but get nothing better out of it, maybe H-L is the answer.

dunstonh

I do about 300 pensions a year and so far this year, not one of them has gone into a SIPP. Personally, I find the product is overated and the majority of people dont need it as they will never utilise the features, options and benefits that they are paying more for.

However, the caveat to that is that I heavily use fund supermarket pensions which offer the usual fund supermarket range of funds (around the 1000 mark). It is estimated that around 90% of SIPPs bought post A day invest in funds. So, a lot of these would be better off in decent personal pensions, fund supermarket pensions or even stakeholder. The fund supermarket pension still should only be used if you need the unit trust range and will use the funds that you cannot get on personal pensions. If you do, then the money is well spent. If you dont then you are wasting money.

Personally, I dont think HL's SIPP or any SIPP is suitable here unless you are not using investment funds. You have protected rights so the logical thing is to use a decent personal pension or fund supermarket pension as they accept protected rights. SIPPs do not.

The amount you are investing deserves a decent fund spread and investment strategy so if that is the case use of unit trusts makes sense. If you are cautious, the use of a personal pension would be better as the costs would be lower. The higher the risk you are, the use of unit trusts would be better as you get funds you are not going to find on a personal pension.

Whatever you do, you will find the annual management charges should be similar or cheaper than those of HL. Unit Trusts have the same annual management charges as HL do not discount them. The real differences aer going to be the setting up costs. 2% is not a bad initial cost. However, you also need to see if there are any initial charges on the investments bought within the SIPP. You would ideally be aiming for that 2% to be the total initial cost including purchases.

So, charges seem fine (assuming its total initial cost). Product could be fine but a fund supermarket or personal pension or even stakeholder may be better depending on your risk profile and if you want to include your protected rights.

EdInvestor

I would also not see a lot of point in the OP moving to a SIPP at this stage on that basis.Were he on the point of taking benefits and wanting to do income drawdown, then it's a different story.

There is now a proper SIPP offering direct investment in shares, gilts property etc, which will take protected rights funds and offer drawdown for those who are interested.It's not cheap compared with the E/O providers, but not too extortionate either.

http://www.ifaonline.co.uk/public/showPage.html?page=ifa2006_articleimport&tempPageName=472421

Definitely a cut above the "hybrids" and the "fund supermarket" pseudo SIPPs.

dunstonh

Definitely a cut above the "hybrids" and the "fund supermarket" pseudo SIPPs.

Its more expensive than the fund supermarket pensions (which are suitable for 90% of the people that use SIPPs) so I thinK I will pass on that. Maybe fine for the other 10% that actually use SIPP investment options.

Back to a question missed (or not fully answered)...

I am unsure what benefits I would be getting from "active management" that I don't already receive from investing through a pension fund.

It depends on your portfolio. If you only end up being in a balanced managed fund or similar, then using a SIPP is a complete waste of money as you can get that in a stakeholder a lot cheaper. If a portfolio is being built that includes a wide range of investment areas then that cannot be achieved in a stakeholder pension and a lot of personal pensions couldnt achieve that either. Only the SIPPs, fund supermarket and top end personal pensions can do that. i.e. if you want your portfolio to include India, China, Emerging countries, global property, New Europe etc, then you are not going to find those options on the stakeholder or average personal pension. Also, insurance companies tend to be very good investing in low risk areas but poor with equities. So, if you are medium risk or higher, the ability to access external funds is important.

Whether you choose a top end personal pension, fund supermarket or SIPP comes down to opinion and what you are looking for. With your limited investment experience and the fact you have protected rights, I dont see the SIPP as being suitable. A personal pension or fund supermarket pension are ideal. If you are not convinced that investment choice is important then a bog standard stakeholder would do the trick.

EdInvestor

Its more expensive than the fund supermarket pensions (which are suitable for 90% of the people that use SIPPs)

Perhaps you could provide a link to this oft quoted factoid that most people using SIPPs are invested in funds. One suspects the numbers include "deferred SIPPs" at insurance cos which are not really SIPPs at all, and SIPPs sold by IFAs (eg Standard Life ) which won't be invested in anything but funds, because IFAs are not authorised to advise on self invested options siuch as shares, ITs etc.

One of the main SIPP providers - the AJ Bell group - doesn't even publish its figures, and most of its clients are likely to be self invested in shares and property.

So IMHO this statement about funds and SIPPs is likely to be incorrect.

If you live overseas an online SIPP can be very useful as you can self manage the investment on the internet.Customer service from these providers is hugely better than that provided by insurance companies.ut there is no need to pay an IFA some ridiculous sum to do the transfer, it is quite simple, have a look at the forms on these sites:

https://www.h-l.co.uk
https://www.sippdeal.co.uk


Nor is it hard to pick a selection of funds.

dunstonh

So IMHO this statement about funds and SIPPs is likely to be incorrect.

Its a good job we dont rely on your opinion. Italics are copied and pasted.

Insurer Aegon Scottish Equitable is one of the bigger Sipp providers, with 25,000 customers in its Flexible Pension Plan (FPP). Between 90 and 95% of its Sipp customers are purely invested in funds which it also offers in its cheaper Stakeholder pension. It charges a basic 1% annual management charge (AMC) on the funds in the Sipp compared with an AMC of between 0.6% and 0.7% on its stakeholder product.

Standard Life has 66% of its Sipp customers invested in core funds, with just a third exploiting self-invested options. Despite this, it has an AMC of 1% for its Sipp compared with 0.7% for its personal pensionfor the same funds. Other providers refused to provide figures, but the industry-wide figures suggest it is a similar story.

Scottish Life have also used 90% as their figures and if you want to include HL who are one of the biggest execution only providers then of course the bulk of theirs are funds as well.

Steve Harvey, director of Vantis - a tax and advisory firm - says: 'Sipps can be costly to set up with high annual charges, and are really only of interest to people who want to devote time to managing their own financial affairs. There are huge numbers out there paying into a Sipp for whom it is a completely inappropriate product.'

Here are another link on same subject:
http://www.trustnet.com/general/news/display-story.asp?id=86927&db=pension


So, you see, you have tax adviser, IFAs (like myself) and the FSA warning that SIPPs are being overused and that stakeholders and more personal pensions may be better.

One suspects the numbers include "deferred SIPPs" at insurance cos which are not really SIPPs at all, and SIPPs sold by IFAs (eg Standard Life ) which won't be invested in anything but funds, because IFAs are not authorised to advise on self invested options siuch as shares, ITs etc.

That is wrong. These are classed as personal pensions, not SIPPs.

This is a money saving site and whilst SIPPs do offer advantages, there is little point people paying more for funds which they can get cheaper within a personal pension or stakeholder. We have seen examples of that on there. The most noteable was one that left a Scottish Equitable personal pensions in their balanced managed fund with a 1% amc to go into HL's SIPP on the advice of a few on this forum but picked a HLs balanced managed fund at 1.5% amc. Not only that, the fund performance was worse as on the HL fund as well.

Stakeholder and personal pensions and SIPPs exist to cover the different needs for different people. Whilst Ed believes that everyone is the same and everyone should use SIPPs (and do drawdown), it is wrong and cost in extra charges.

purch

I think one of the reasons why so many people are choosing the D.I.Y. route and setting up a low cost SIPP with the likes of HL and Sippdeal is that it is truely Do It YOURSELF.

What probably turns many off from using products such as those offered by Scottish Widows or Scottish Equitable ( which may be cheaper, but you can't find out cos they don't quote their charges on their website )is that you HAVE to use an I.F.A. to set one up, ( and find out the charges ) which as previous threads have shown some people are not comfortable with.

Scottish Widows say in the FAQ's in response to the Q 'Can I set up the product direct with you?' :


You can only apply for a Retirement Account through a Financial Adviser. A Financial Adviser will be able to help you define your attitude to risk and advise you on the mix of investments that may best suit your retirement goals. This will take into account factors such as your age, health and your wishes regarding provision for any dependants you may have. You can then make an informed decision based on clear choices.


In other words..........you are too stupid to use this product without the 'guidance' of an I.F.A.

These products are not SIPPs, they are I.F.A.IPP's

TRUSt_NO_1_2

I have already posted on this issue under "SIPPS and Drawdown and annuity"
http://forums.moneysavingexpert.com/showthread.html?t=571040
Do you have the confidence to buy shares (and selll them when you''ve made enough money) ?
If answer is yes,transfer into a SIPP and DO YOUR OWN INVESTING.
Why pay someone to make decisions,and take a big cut,when you can do it yourself ?
I would not touch a fund with a barge pole.Is the fund exposed to the derivatives market...you would never know until it's too late.If it was, it could quite easily lose all your money.The fund manager would bail out and leave you holding the tab.
Share dealing is transparent.
If you think Tesco shares are a safe bet..buy shares in Tesco..it's that simple,but don't get greedy...set a price at which you will sell.
If you are not confident to invest in shares yourself,you have to trust someone to do it for you and the SIPP will not protect you.

purch

Share dealing is transparent

Tell that to the non-executive Directors in Northern Rock who bought shares in the company in July :eek:


Everything was so TRANSPARANT even they didn't know the problems the company was facing !!!!

Most professional fund managers know far more about the Company's they are investing in, and are privy to far more inside information than any private investor can only dream of !!!

TRUSt_NO_1_2

purch wrote: »

Tell that to the non-executive Directors in Northern Rock who bought shares in the company in July :eek:
Everything was so TRANSPARANT even they didn't know the problems the company was facing !!!!

Most professional fund managers know far more about the Company's they are investing in, and are privy to far more inside information than any private investor can only dream of !!!

---

Remind me of the above when funds are going to the wall when the derivatives market,which Northern Rock has sampled via sub prime mortgages,goes into meltdown.
Statistics show that average fund performance is less than average stock exchange performance,so many fund managers are merely playing the field with other peoples money.They still take their commission win or lose.I acknowledge the existence of insider trading.
We have an instance of a bank going to the wall.
What about insurance companies where many pensions sit.What is their exposure to the derivatives market.No one knows the answer,because the derivatives market is unregulated.The sub-prime mortgage element is the tip of the iceburg.
I only invest in companies that deal in tangibles.I can see their products.I also find out if they have exposure to derivatives or any forward selling of their products.