SIPP - regular contributions and keeping costs down

Eskdale_investor

I’m looking at opening a SIPP to supplement my employer contribution (TPS). The SIPP would probably be used to facilitate early retirement in some shape or form. Im looking at small but regular contributions - say £125 per month. I’ve got at least another 25 years of contributions to make to this SIPP. I can afford to take riskier decisions investments with this SIPP, I’ll have a TPS pension and property elsewhere so this is a ‘nice to have’ investment. 

Having done a fair bit of research, I’m still a little stuck on which platform would be most suitable to use. AJ Bell seem to have relatively low trading fees for shares, ETF etc, but if I’m putting in a small sum each month these would still soon add up. Interactive investor talk about free regular trading on their website, but the higher flat platform fee would also erode the value of the fund quickly while it is still small. Would I be better off paying monthly into the AJ Bell platform and then only buying/trading a couple of times a year to keep trading costs down? I’m probably looking at a staple of global tracker funds diversified with some slightly riskier investments at this stage as I’m a long way from any drawdown. 

Any recommendations of the best way to approach platform selection and funds to go for welcome. 

Thanks

Eskdale Investor. 

kempiejon

Always worth checking for a recent Monevator article comparing online broker fees for platform selection 

https://monevator.com/compare-uk-cheapest-online-brokers/
I'd probably consider starting with a cheap percentage charging provider until you build a pot then think about switching to fixed fee to keep costs lower. It's in the article.

Which funds opens a whole raft of new question and annoyingly the platforms charge differently for different types of investments.

Albermarle

Some SIPP platforms and the traditional pension providers ( Standard Life, Prudential etc) do not charge at all for regular investing or any other way of buying investments. However this only applies if you invest in OEICs ( Unit trusts) which the majority of investments are for pensions etc .
If you want to buy shares, ETF's etc there will normally be a trading charge of some kind and some SIPP's also charge for buying OEIC's as well.

EthicsGradient

You might be able to get a good deal from Hargreaves Lansdown. They say "There’s no charge for a Direct Debit into funds, shares and selected investment trusts and exchange-traded funds (ETFs)". They charge 0.45% per year (calculated monthly, I think) on the total value of your investments; over 5 years (60 months), your £125/month might get charges (with a bit of growth) of around £3.50, £11, £19, £28 and £39 in each year. So they're cheap at first. At some point, it becomes worth transferring the pension (or, if you can, the part you've already bought) to another platform with a lower percentage fee, or a fixed fee, as kempiejon says.

cloud_dog

I would suggest, for someone starting out that either Vanguard or Dodl (AJ Bell mobile product) with 0.15% platform fees and accessible cheap funds might be the simplest option to begin with.  I would probably go with Vanguard as whilst both providers charge a relatively small percentage fee (0.15%) Dodl have a minimum charge of £1 pm.

You can always switch to other, possibly cheaper options when the pot size is more significant.

The only other suggestion I would offer is whether you are a higher rate tax payer or not?  If you are then a pension is the best option, but if you are currently a basic rate tax payer BUT perhaps close to becoming a higher rate tax payer I might consider simply putting the extra £125pm in to an ISA until you have sufficient HRT bandwidth and then use this previously invested ISA money to support your larger pension contributions.

All of this assumes that you have already reviewed other options under the TPS, e.g. faster accrual etc and have decided on the above preferred route...

https://www.teacherspensions.co.uk/~/media/Documents/Member/Factsheets/Managing your pension/Faster accrual Factsheet.ashx
 

Eskdale_investor

Thanks for the thoughts, I’ll do some further research and look into the options suggested. I’m a HRT, Hence thinking about paying into SIPP. I have thought about faster accrual. Mrs. Esdale investor is also in TPS (and also HRT) and will probably go for this. One of the many considerations is having a DC Scheme which could be passed on to the children once we are gone if money remains in it, which would not be the case with TPS.

IvanOpinion

I went through this exercise recently for someone else. 
If you are starting from zero and set up a monthly DD then Fidelity might be worth considering because they only charge a 0.35% fee if you have a regular saving plan, plus they don't charge for trading funds, ETF's etc. (I thiink they might charge for buying selling shares - was not relevant to us so I didn't look into that bit too much).

Once the amount invested builds up then you need to reassess the fees and ensure the platform is still best value.

cloud_dog

IvanOpinion said:

I went through this exercise recently for someone else. 
If you are starting from zero and set up a monthly DD then Fidelity might be worth considering because they only charge a 0.35% fee if you have a regular saving plan, plus they don't charge for trading funds, ETF's etc. (I thiink they might charge for buying selling shares - was not relevant to us so I didn't look into that bit too much).

Once the amount invested builds up then you need to reassess the fees and ensure the platform is still best value; £1.50 regular investment 

Fidelity are not the cheapest around (depending on what you want).  They charge for any exchange traded instrument (stocks, ETFs, ITs), £1.50 for regular investment and £9.95 for ad-hoc transaction, but not for OIECs.

IvanOpinion

Thanks cloud_dog, you are correct, I meant to put OEICs there but for some reason my fingers refused to co-operate with my brain and typed ETF. Apologies to OP, there is a transaction charge for shares, ITs and ETF's with Fidelity.

However the main point still remains, if you set up a regular payment and are dealing only in OEICs then they do work out very cost effective.

BigBlueSky

I was originally with Hargreaves Lansdown but moved away due to their fees and now with Interactive Investor.  They have been great.  Offer everything I need and very low cost too.

If you know anyone who is already with them they can recommend you and you get free account access for 12 months - which makes it the lowest cost one out there!

Albermarle

BigBlueSky said:

I was originally with Hargreaves Lansdown but moved away due to their fees and now with Interactive Investor.  They have been great.  Offer everything I need and very low cost too.

If you know anyone who is already with them they can recommend you and you get free account access for 12 months - which makes it the lowest cost one out there!

Fixed fee platforms are fine for larger amounts, but for someone just starting a % fee based platform is cheaper.