Confused about SIPP charges - platform fee AND funds charges?

7sefton

Hi

I’m looking into a SIPP but am confused about whether I will usually be charged by the fund manager for any funds I hold in the SIPP, as well as for the SIPP platform itself.

E.g I know a SIPP provider may charge 0.45% platform charge, and a fixed fee for share/fund dealing, but generally speaking must I also factor in charges that the fund ‘brand’ levies on any of their funds I hold in my SIPP?

AlanP_2

Yes.

Most percentage fee based providers do not charge a dealing fee for funds but may for ITs and shares.

Total fee is platform plus fund.

Fund fees cover the costs of the investment company and the platform fees cover their costs - plus a bit of profit.

Audaxer

7sefton wrote: »

E.g I know a SIPP provider may charge 0.45% platform charge, and a fixed fee for share/fund dealing, but generally speaking must I also factor in charges that the fund ‘brand’ levies on any of their funds I hold in my SIPP?

The value of the fund will show as net of fees, i.e. you will not see a transaction for the fund fees being deducted. However you should check what the OCF is for funds you have invested in as it will affect the amount of returns you will get over the long term. For example I would be wary of investing in funds with an OCF of over 1% unless they had a very good history of returns.

7sefton

Thanks everyone so far - really helpful!

I just have two further questions:

- With funds, does one get dividends reinvested in the fund (thus benefited from compound interest), like shares? Or do funds operate differently?

- I have two old workplace pensions with Scottish Widows and Fidelity. Both have a selection of funds in them, with AMCs of about 0.4% and no further charges (ie no platform fees). Both will allow me to make private contributions to the schemes, so I’m thinking it might be worth me doing to this instead of opening a SIPP and having to pay double fees. Obviously the fund choices in the old workplace schemes I already hold might be limited, but if I was happy with them then this might be a better option?

MallyGirl

7sefton wrote: »

Thanks everyone so far - really helpful!

I just have two further questions:

- With funds, does one get dividends reinvested in the fund (thus benefited from compound interest), like shares? Or do funds operate differently?

If a fund comes in both INC and ACC versions then Inc will pay out dividends which you can deal with, Acc they are automatically reinvested

Audaxer

MallyGirl wrote: »

If a fund comes in both INC and ACC versions then Inc will pay out dividends which you can deal with, Acc they are automatically reinvested

Just to add, in the Acc version you don't get more units like you would if you manually reinvested the dividend in the Inc fund. The difference is that on ex-div day when a percentage is taken out the Inc version to pay the dividends, the Inc fund will reduce in value, whereas the Acc fund will not reduce in value as no dividend is paid. If you are not planning to take dividends for some years it is better to go for the Acc versions.

7sefton

Audaxer wrote: »

Just to add, in the Acc version you don't get more units like you would if you manually reinvested the dividend in the Inc fund. The difference is that on ex-div day when a percentage is taken out the Inc version to pay the dividends, the Inc fund will reduce in value, whereas the Acc fund will not reduce in value as no dividend is paid. If you are not planning to take dividends for some years it is better to go for the Acc versions.

Sorry but I don’t understand this. In an ACC version I don’t get dividends in cash and nor do I get extra units? So where’s the benefit go?

tacpot12

7sefton wrote: »

Thanks everyone so far - really helpful!

I just have two further questions:

- With funds, does one get dividends reinvested in the fund (thus benefited from compound interest), like shares? Or do funds operate differently?

- I have two old workplace pensions with Scottish Widows and Fidelity. Both have a selection of funds in them, with AMCs of about 0.4% and no further charges (ie no platform fees). Both will allow me to make private contributions to the schemes, so I’m thinking it might be worth me doing to this instead of opening a SIPP and having to pay double fees. Obviously the fund choices in the old workplace schemes I already hold might be limited, but if I was happy with them then this might be a better option?

Yes, if you are happy with the investment choices, making contributions to one these old schemes to save on the charges would make sense.

Audaxer

7sefton wrote: »

Sorry but I don’t understand this. In an ACC version I don’t get dividends in cash and nor do I get extra units? So where’s the benefit go?

Say the dividend is an annual one and is 2%. On ex-div date 2% is taken out of the Inc fund to pay investors 2% of their fund's value a month or so later on dividend date. So the person that had a value of £10k in the Inc fund will now find his fund valued at £9,800 but he will have a cash dividend of £200 to come to him on dividend date. A person with £10k in the Acc fund will still have £10k as the dividends generated by the underlying companies were invested back into the fund, whereas in the Inc fund these dividends were drawn out of the fund to pay the dividends to the investors on dividend date.

Albermarle

The 0.4% total charges seem a bit too good to be true. Suggest you call them direct and ask explicitly if these are really the only charges.
I know many large employers have negotiated lower charges for their workplace pensions but not quite this low in my experience.

EdSwippet

Albermarle wrote: »

The 0.4% total charges seem a bit too good to be true. Suggest you call them direct and ask explicitly if these are really the only charges. I know many large employers have negotiated lower charges for their workplace pensions but not quite this low in my experience.

No harm in the OP checking, but in my experience, in recent years I have not had an employer plan with charges above 0.4%!

Around eight years ago my (now ex-) employer's group personal pension was charging 0.33%. This dropped to 0.29%, to 0.19% on a change of provider, to now 0.18% in an Aviva (formerly Friends Life) plan. I could just about beat this 0.18% by moving to a SIPP, but not by much, and the Aviva platform has some advantages that neither of my two SIPPs have. Honestly, I'm actually pretty happy leaving this particular pension with Aviva.