SIPP fees vs tax savings - surprising conclusion outside UK

GingerCatsAreGreat

Hi,

I've approached a few companies here (Isle of Man) about SIPPs and they give their information on fees, but they are higher than the UK with fewer tax savings. This leaves it to me to calculate whether the tax savings are worth their fees.

All my calculations are based on the present rules, based on present values, subject to change. I'm not seeking investment advice, I'm evaluating whether the same investment inside or outside a SIPP is cost effective.

The present pension freedom rules here are that you can take 40% of the pension tax free, from age 55, it doesn't matter if a lump sum or gradually. With an income tax rate of 22%, and most paying the same income tax rate in retirement as when working, that is an effective tax rate of (100 - 40) * 22% = 13.2%, or a saving of 8.8% tax. I'm paid by my own companies in dividends that are taxed like income, there is no corporation tax, capital gains tax or inheritance tax and there is no national insurance effect either way.

So I'm making a straight comparison between the SIPP wrapper fees which are much higher than the UK and the tax savings which are much lower.

Typical fees are 1.2% inc VAT for contributions and 1.2% inc VAT annual fee. This is for the wrapper, and so far the "best buy" I've found will cap the fees for a couple at what over a likely 10 year horizon get the fees down to a total of just over 3% of the total amount, in today's values, assuming no real growth. The investment platform (as well as any fund management fees) are extra, but outside a SIPP I can use brokers that have negligible cost, so over 10 years I'm estimating the overall fees are likely to be about 4% as a cost for comparison compared to doing it outside a SIPP. Outside a SIPP, any growth would attract income tax, but there are ample investments choices I'm happy with that would not produce much income but are biased towards capital growth, but it is a consideration.

Overall then on a like for like basis of SIPP vs investing outside a SIPP with already taxed income as I have been doing I'm looking at a net saving of <5% to give me and my company admin, uncertain future location, circumstances or tax rates, loss of opportunity for using the money for other things.

Apart from any misunderstanding of the local specifics, I don't think the saving is worth it. To sense check this, I really appreciate opinions either way.

Thanks!

GingerCatsAreGreat

Correction "Outside a SIPP, any growth would attract income tax" should read "Outside a SIPP, any income (dividends or interest but not capital gains) would attract income tax"