Is it worth investing in my private pension

dunstonh

Direct investment can mean shares, investment trusts, other quoted stocks etc.

If you are going to use investment funds then you shouldn't automatically assume that the SIPP is the best place to get them as you are effectively buying the same funds that are present on personal pensions and stakeholders.

If you assume like for like distribution channels (i.e. if you are going DIY then you would buy the SIPP or the personal pension on execution only discount terms) then the personal pension would typically come in cheaper than the SIPP. This is because SIPPs do not discount the annual management charge. Personal pensions do. You could find the personal pension has annual management charges as low as 0.3% whereas typical equity funds within a SIPP would be 1.5% .

Now 0.3% would be internal funds only but a typical portfolio for medium risk or lower would use some of those internal funds and the external funds may only cost 1% compared to 1.5% on the SIPP.

There is a misconception that SIPPs bought direct are cheap but they are not. They are cheaper than some of the higher charged advice examples that again are oversold.

I mentioned on another thread just recently about a new client where I recommended a stakeholder pension that had an amc of 0.7%. I did the report and recommendation but he came back to me saying he had read a SIPP guide from the Telegraph and he wanted a SIPP because they were cheaper. He told me he wanted a Jupiter Merlin fund as well as the guide sponsors suggested. The SIPP was HLs. I then had to explain to him that the amc on that fund was 1.5% compared to 0.7% on my recommendation and that the fund he had chosen had worse past performance than the selection of funds (built to sector allocation) on the stakeholder. That wasnt by using best performing funds as I had already built the portfolio before he raised the SIPP issue and issued him with the report.

He was totally suckered in by the media frenzy that SIPPs are best. He was an inexperienced investor. He didnt know good funds from bad and didnt have the interest in finding out and keeping it under review. Luckily, he had the common sense to listen and he went with the stakeholder.

SIPPs are good in that they open up investment options not available on personal pension or stakeholder but if you dont use those options then you could easily be paying double in charges over a stakeholder or personal pension.

Enigmaman

I have an existing personal pension from Legal & General. On the basis of what you've said I think I will put money into that.

Further factors that I need to take into account concern the effect of any income future income from Personal Pension and Pension Credit on entitlement to Housing Benefit, Council Tax Benefit and Tax Credits (if they still exist then and I am still entitled to them).

dunstonh

I have an existing personal pension from Legal & General. On the basis of what you've said I think I will put money into that.

Check the charging structure. Like most providers, they have had a number of versions of pension product over the year and whilst the current personal pension and stakeholder are well priced, the olders ones can have no fund based discounts and come in at a straight 1% amc.