Open a SIPP to transfer workplace pension into?

Polly05

Hi. I'm doing a little research into this and was wondering what the consensus was.
I have suggested to my partner that he opens a low cost sipp such as vanguard and then transfers in most of his work place pension. His current provider charges 0.7% annually. Vanguard would be 0.15% (and then he would transfer out most of the workplace pension every 6 months or so since it's still being paid into).
He has never changed what he invests in in his pension and doesn't know much about it. The 2 things his workplace pension is invested in are not available on vanguard.  So he would need to sell them, transfer the cash and invest in something different. Or go with a different provider that he could maybe keep them and transfer them 'in specie'?

I think he could maybe change what he invests in going forward, so it's easier to transfer it over routinely. Like global all cap which is available through both his workplace pension and vanguard.

Thoughts?

Thanks

MallyGirl

Are you sure about the current workplace charge - they are often discounted.
If moving to Vanguard he would be limited to Vanguard funds.
If he doesn't know much about investing and has never looked at the funds his workplace pension are invested in then why would it be a good idea to go DIY? He could cost himself an awful lot more than the difference between 0.7% and 0.15% with one unwise decision.

dunstonh

I have suggested to my partner that he opens a low cost sipp such as vanguard and then transfers in most of his work place pension. His current provider charges 0.7% annually. Vanguard would be 0.15% (and then he would transfer out most of the workplace pension every 6 months or so since it's still being paid into).

Is it worth it?
He is going to be out of the market for about a week to two weeks with each transfer and could lose several percent potentially which may never be made up through the lower charges.

ANd remember that the 0.15% is only part of the charges.  The fund OCF, TC & IC will need to be added on to match the pension.  The fund you mentioned has an OCF of 0.23%, TC of 0.04% and IC is nil.  So ,the charges would actually be 0.42% compared to 0.7%.  Still cheaper but not as much as you said.

He has never changed what he invests in in his pension and doesn't know much about it. The 2 things his workplace pension is invested in are not available on vanguard. 

Vanguard is not a real SIPP.  It lacks SIPP functionality.    The key thing missing is that SIPPs offer funds from across the market place.   Vanguard's personal pension offers its own range of funds only (and even then, not the complete range of its own funds).   

Plus, workplace pensions typically use insured funds that give 100% FSCS protection. Vanguard's offering gives funds that have no FSCS protection or are restricted to £85k.  That is not that important if you know what you are doing but it will be to some people or those that don't know what they are doing.

Or go with a different provider that he could maybe keep them and transfer them 'in specie'?

You cannot in-specie insured funds.

Have you compared the global tracker option on the workplace pension to the Vanguard fund?   charges are just one element. Tracking error is another along with replication methods and you may find that even though its more expensive, it may have better returns.

Bostonerimus1

dunstonh said:

I have suggested to my partner that he opens a low cost sipp such as vanguard and then transfers in most of his work place pension. His current provider charges 0.7% annually. Vanguard would be 0.15% (and then he would transfer out most of the workplace pension every 6 months or so since it's still being paid into).

Is it worth it?
He is going to be out of the market for about a week to two weeks with each transfer and could lose several percent potentially which may never be made up through the lower charges.

ANd remember that the 0.15% is only part of the charges.  The fund OCF, TC & IC will need to be added on to match the pension.  The fund you mentioned has an OCF of 0.23%, TC of 0.04% and IC is nil.  So ,the charges would actually be 0.42% compared to 0.7%.  Still cheaper but not as much as you said.

He has never changed what he invests in in his pension and doesn't know much about it. The 2 things his workplace pension is invested in are not available on vanguard. 

Vanguard is not a real SIPP.  It lacks SIPP functionality.    The key thing missing is that SIPPs offer funds from across the market place.   Vanguard's personal pension offers its own range of funds only (and even then, not the complete range of its own funds).   

Plus, workplace pensions typically use insured funds that give 100% FSCS protection. Vanguard's offering gives funds that have no FSCS protection or are restricted to £85k.  That is not that important if you know what you are doing but it will be to some people or those that don't know what they are doing.

Or go with a different provider that he could maybe keep them and transfer them 'in specie'?

You cannot in-specie insured funds.

Have you compared the global tracker option on the workplace pension to the Vanguard fund?   charges are just one element. Tracking error is another along with replication methods and you may find that even though its more expensive, it may have better returns.

I'm surprised that you would try to scare someone about the time out of the market when making a transfer. Yes keep it as short as possible, but it might be a good thing rather than a bad thing and it probably won't be a thing at all.

Also for the DIY investor there is little utility in having access to the entire world of funds. Offerings from within Fidelity, HSBC and even Vanguard will allow appropriate portfolios to be built. 

dunstonh

I'm surprised that you would try to scare someone about the time out of the market when making a transfer. Yes keep it as short as possible, but it might be a good thing rather than a bad thing and it probably won't be a thing at all.

Scare?  You mean point out a risk warning that exists when doing transfers.  Especially in volatile markets.

Also for the DIY investor there is little utility in having access to the entire world of funds. Offerings from within Fidelity, HSBC and even Vanguard will allow appropriate portfolios to be built. 

Nobody "needs" access to the entire world of funds but then restricting yourself to just one fund house is often not a good idea either.

UrbanAchiever

dunstonh said:

I'm surprised that you would try to scare someone about the time out of the market when making a transfer. Yes keep it as short as possible, but it might be a good thing rather than a bad thing and it probably won't be a thing at all.

Scare?  You mean point out a risk warning that exists when doing transfers.  Especially in volatile markets.

Also for the DIY investor there is little utility in having access to the entire world of funds. Offerings from within Fidelity, HSBC and even Vanguard will allow appropriate portfolios to be built. 

Nobody "needs" access to the entire world of funds but then restricting yourself to just one fund house is often not a good idea either.

Volatility works both ways as Bostonerinus1 says.  I think you are making this a bigger issue than it is.

dunstonh

UrbanAchiever said:

dunstonh said:

I'm surprised that you would try to scare someone about the time out of the market when making a transfer. Yes keep it as short as possible, but it might be a good thing rather than a bad thing and it probably won't be a thing at all.

Scare?  You mean point out a risk warning that exists when doing transfers.  Especially in volatile markets.

Also for the DIY investor there is little utility in having access to the entire world of funds. Offerings from within Fidelity, HSBC and even Vanguard will allow appropriate portfolios to be built. 

Nobody "needs" access to the entire world of funds but then restricting yourself to just one fund house is often not a good idea either.

Volatility works both ways as Bostonerinus1 says.  I think you are making this a bigger issue than it is.

I have not placed any level of emphasis on the risk warning.  I just pointed it out and asked whether it was worth it.

For example, taking 7 days in August, markets moved up 2.6%.
The OP was looking at a cost difference of 0.28%, which could take around 9 years to recover the difference.
Yes, it could go the other way, but given my other point about checking whether there is a suitable fund for the workplace pension and how it compares to the proposed fund, a change may not be necessary.   

Comparison of what is available vs the alternative along with potential risks should always be considered  The OP hasn't come back yet to say what global trackers are available on the workplace pension and how they compare.   So far, they are just looking at the cost difference but that is insufficient to make the call.  A cheaper tracker does not necessarily equate to better performance.