Warning re Stakeholders/Personal Pension vs SIPPS

edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning
195 replies 15.2K views
whiteflag_3whiteflag_3
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Why are SIPPs constantly being recommended on this site ?

To use a SIPP to its full potential you either need to be an experienced investor or have a good adviser. If you are on this site because you dont know what type of pension you have at the moment it is highly unlikely you should be looking at a SIPPs.

At low levels of investment they are expensive. There are numerous posts site saying they are cheap however nearly every post ignores the fact the SIPP is just a wrapper and there are ongoing costs on what you hold in it.

If there any investors out there who have a SIPP with under £100K, have no investment knowledge, are paying total charges (that is fund management/ broker and SIPP charges) of 1% per annum or less of the fund value and think they are substantially better off than being in a standard insured Personal Pension please the rest of us know?!

EdInvestor - tesco give me carrier bag for free , its only when I start filling it with shopping does it cost me anything - catch my drift :rolleyes:
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  • ReportInvestorReportInvestor Forumite
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    whiteflag wrote:
    a standard insured Personal Pension
    That sounds good. What is it?
  • whiteflag_3whiteflag_3
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    That sounds good. What is it?
    There are plenty of posts on this site that refer to Personal Pensions with 1 % pa charges or less. What hope for new investors when not so newbies need to be pointed in the right direction!
  • EdInvestorEdInvestor
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    NOTE to new readers: This thread does not discuss putting property in a SIPP.There are other threads further down the forum on this issue.


    There are numerous posts site saying they are cheap however nearly every post ignores the fact the SIPP is just a wrapper and there are ongoing costs on what you hold in it.

    Not necessarily. It depends on the provider and what you invest your pension money in.I have recommended cheap online SIPPs, not all SIPPs - many of the older SIPPs are expensive quite justifiably because they provide bespoke services such as the purchase of commercial property to rich people with very big pension funds.

    Cheap online SIPPs of the type I recommend are similar to the cheap online discount brokers that MSE favours - indeed many of the providers Martin covers in his articles will provide you with a cheap SIPP wrapper alongide an ISA these days.

    Note by the way that Personal Pension charges have now gone up to 1.5%.
    Trying to keep it simple...;)
  • EdInvestorEdInvestor
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    Whiteflag

    You asked:

    Why are SIPPs constantly being recommended on this site ?

    And then you noted:


    There are plenty of posts on this site that refer to Personal Pensions with 1 % pa charges or less.


    So that'll be OK then :D
    Trying to keep it simple...;)
  • ReportInvestorReportInvestor Forumite
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    Especially if they come "insured" ;).

    Sorry about that Whiteflag, but elsewhere you showed yourself a stickler for correct terminology. It wasn't at all clear what you meant by "a standard insured Personal Pension". With an insurer? Risk free?
  • whiteflag_3whiteflag_3
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    Not necessarily. It depends on the provider and what you invest your pension money in.I have recommended cheap online SIPPs, not all SIPPs - many of the older SIPPs are expensive quite justifiably because they provide bespoke services such as the purchase of commercial property to rich people with very big pension funds.

    The purpose of this thread was to invite comment both good and bad with regard to Sipps. I am genuinely concerned that investors could go into a cheap Sipp with no investment experience and do a bad DIY job and could end up worse off. My point is not that SIPPs are bad- far from it, you just need to know what your doing and this point isnt being emphasised enough.

    EdInvestor can you give us some figures for charges on say a £50k in a cheap SIPP on a year to year basis. If its not too much trouble can you quote for cheapest possible and explain what the money would be invested in and also say managed funds with one of the leading fund managers. Be sure to include all charges. This will surely settle any debate.

    Note by the way that Personal Pension charges have now gone up to 1.5%.
    Today 5:03 PM
    Are you sure - mine havent
  • dunstonhdunstonh Forumite
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    tesco give me carrier bag for free , its only when I start filling it with shopping does it cost me anything - catch my drift

    I like that. ;)
    Note by the way that Personal Pension charges have now gone up to 1.5%.

    Dont mix up stakeholder pensions and personal pensions. Plus get the timescale of the extra 0.5% correct and note that most providers havent touched their amc. Some have even seen it as a way to bring in external fund managers within the stakeholder regime
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • cheerfulcatcheerfulcat Forumite
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    whiteflag wrote:

    If there any investors out there who have a SIPP with under £100K, have no investment knowledge, are paying total charges (that is fund management/ broker and SIPP charges) of 1% per annum or less of the fund value and think they are substantially better off than being in a standard insured Personal Pension please the rest of us know?!

    OK. I have a SIPP with Hargreaves Lansdown which has less than £10k never mind £100k. It cost £0 to set up, £0 to contribute or transfer and, for funds which pay renewal commission, £0 annual charge. I prefer to handle my own investments, including picking the shares, so it costs me £14.95 per share transaction ( based on the typical size of £1000 ) + 0.5% tax and an annual fee of 0.5% + VAT of my fund's value, to a maximum of £200. I intend to transfer my current stakeholder to HL shortly, so the total in the fund will stand at around £15,000. I plan to hold a selection of high yielding shares in the SIPP wrapper, re-investing dividends from time to time, so after the initial set up there will be no more than three or four transactions in any one year.

    So - annual charge starting at £35 and rising annually until the fund stands at more than £40k, £200 thereafter + say £100 in dealing charges pa ( assuming that as the fund increases the purchases will become fewer but more expensive as HL dealing charges are based on the size of the deal ).Thus charges stand at ~£300 pa no matter what the size of the fund.

    I think that I'm *miles* better off with my self-invested pension than I would be with any insurer. I control my own investments, I control the costs, I know exactly where my money is invested and I have only myself to blame if the wheels come off. Furthermore, I am not having to share what is after all *my* money with a lifeco, an investment house and an IFA who all think that they know better than I do.

    My investment knowledge is fair and I have had ten years' experience though I have been really serious only for two and a half years. However, even a novice investor could buy a FTSE All-Share tracker within a SIPP and leave it there to grow...

    Cheerfulcat
  • dunstonhdunstonh Forumite
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    OK. I have a SIPP with Hargreaves Lansdown which has less than £10k never mind £100k. It cost £0 to set up, £0 to contribute or transfer and, for funds which pay renewal commission, £0 annual charge. I prefer to handle my own investments, including picking the shares, so it costs me £14.95 per share transaction ( based on the typical size of £1000 ) + 0.5% tax and an annual fee of 0.5% + VAT of my fund's value, to a maximum of £200. I intend to transfer my current stakeholder to HL shortly, so the total in the fund will stand at around £15,000. I plan to hold a selection of high yielding shares in the SIPP wrapper, re-investing dividends from time to time, so after the initial set up there will be no more than three or four transactions in any one year.


    Here you are not comparing like for like. You are discussing holding single shares and not funds.

    You also prefer to handle your own investments and have confidence in what you are doing. So a SIPP is fine for you.

    I would disagree with on the tracker front as that would be cheaper inside a stakeholder.

    The issue we are really trying to get ed to see is:
    1 - SIPPs are for more confident investors
    2 - Are not always cheaper than the alternatives available
    3 - He should include fund management charges on SIPPs when comparing against alternatives. i.e. mentioning the 1% on SHPs but saying funds in SIPPs have no AMCs.

    None of us here are saying SIPPs are unsuitable for everyone. Equally, they are not suitable for everyone. The blanket answers Ed gives saying do drawdown, do a SIPP etc are quite dangerous as many people read the threads without contributing in the discussion and some may take him seriously.

    As technology improves and the SIPPs can become true wraps, they will probably surpass personal pensions as the product of choice.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • EdInvestorEdInvestor
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    OK, here's a SIPP example at my provider, Sippdeal.This one is for the cautious investor, so the asset allocation is much like it is for an investment bond, a distribution fund or a cautious managed fund.That's 60% in equities, 20% in commercial property and 20% in cash/bonds.

    The 30k into equities will also go into a diversified HYP of 15 shares, as with cheerfulcat's post.This is equivalent to an equity income fund without the charges, and is in many ways less risky IMHO.The funds often tend to have too many utility shares and bank shares for my liking.There are no charges for holding shares once they have been bought.The dividend yield will be 5.5%.

    The 10k into commercial property will go into two offshore quoted property trusts run by Scottish Widows and Standard Life, both very experienced at handling property over the years: these have no annual management charges. Dividend yield of 6%.

    The 10k for bonds/cash will go into the SIPP's cash fund, to keep it simple.This is at the Bank of Scotland. Interest rate is 3.03% (goes up to 3.8% for more than 20k), nearly 4 % grossed up.

    So how do the charges work for this 50k pension fund we are bringing in?

    Set up fee 100
    Transfer in fee 85
    Dealing costs for 15 shares 225
    Stamp duty 150
    Dealing costs for 2 trusts 30
    Stamp duty 20

    Sub total 610
    VAT 106
    Total 716
    which is 1.4%, lower than the 1.5% cost of stakeholder.

    But the real benefit comes in the following years:)

    At the start of year two you will have to pay 15 quid plus VAT for a compulsory and useless illustration of what your SIPP might be worth in 30 years time according to the Government's projections.

    But the more important thing to do is decide what to do with all the money which has accumulated in your cash fund from the dividends :)

    You should have:

    1,650 from the shares
    600 from the property trusts and
    303 from the cash

    Total 2,553

    What to do with this?

    I personally like to run a HYP of 20 shares, because it adds a bit more safety - 15 is pretty good, but 20 is optimal (it doesn't improve after that.)

    So let's assume another good share is available and you put 2k into that, leaving the other 553 in the cash fund.

    That will cost you 15 quid in dealing costs and 10 in stamp duty.

    Doing nothing else all year, that will bring your total costs to 40 pounds.

    Let us assume that your fund has not grown at all.

    If so, charges make up 0.08% of it. Negligible.

    Whereas with the stakeholder you are paying 750 quid every year even if you do absolutely nothing and you fund doesn't improve.
    With the SIPP, the bigger your fund gets, the lower the charges, with a percentage charged pension, it's the opposite :(



    More info about the HYP idea for those interested
    Trying to keep it simple...;)
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