The low cost Self Invested Personal Pension (SIPP) market has boomed in recent years, thanks to providing a cost effective option for those who want a wider choice of investment than offered by stakeholder pensions.
Price comparison website Fair Investment is the latest provider to enter the market, with a low cost SIPP offering a wider choice of investments and cash accounts than many competitors.
There's the usual extensive range of funds to choose from and shares (including investment trusts and exchange traded funds) are available too. But what sets this low cost SIPP apart from others is the availability of several structured products and a couple of cash accounts that pay better rates than the competition.
Fair Investment also offers 7 suggested model portfolios put together by a research company called Rayner, Spencer Mills. It's not a direct replacement for managed funds of funds (as it's only re-balanced every quarter), but these portfolios are cheaper as only the underlying fund charges apply - there's no additional management fee.
The SIPP is held on the Nucleus Financial investment platform, which is well-proven and sensible choice. The minimum initial investment is £20,000 with subsequent top-ups subject to a £100 per month or £1,000 per annum minimum.
So far so good. But now we come to charges - which are a potential drawback.
Fair Investment is very transparent. They refund all commissions in return for a 0.5% annual fee and a further 0.35% is charged by Nucleus (who don't take the usual platform fees from fund providers).
What this means to you is fund charges that are generally 0.5% to 0.75% a year lower than normal and mostly no initial charges, but in return you'll have to stump up an extra 0.85% annual SIPP fee.
So if you simply want to invest in commission paying funds then the Hargreaves Lansdown Vantage SIPP will likely prove a little cheaper. For example, the Schroder Income Maximiser fund costs 1.5% a year through the Vantage SIPP. The same fund costs 0.75% through the Fair Investment SIPP but the annual 0.85% SIPP charge pushes total costs to 1.6% a year.
The dealing fee for buying and selling shares is 0.15% subject to a minimum £15 charge. This is a bit steep compared to some competitors, especially for deals above £10,000. But it's the 0.85% annual fee that really kills this SIPP if you predominantly want to hold shares/investment trusts/exchange traded funds. The Sippdeal e-sipp charges a fixed £9.95 per trade and no annual fee - much cheaper if you don't want to buy unit trusts.
If you want to hold a mix of funds and shares then the Alliance Trust Savings i.nvest Select SIPP might be preferable. Commission rebates mean annual fund charges are generally similar to Fair Investment and i.nvest's flat £75 + VAT annual fee is potentially much lower than Fair Investment's 0.85%. i.nvest charges a fixed £12.50 per trade which is good value for shares, but beware that it also applies to funds which could reduce the overall cost saving.
Fans of structured products (i.e. protected stockmarket linked plans) will like Fair Investment's SIPP as it's currently the only low cost SIPP to offer these.
This SIPP is also quite unique in offering reasonable cash returns, given most competitors struggle to offer more than 0.1% annual interest on cash balances. You have access to Scottish Widows and RBS cash accounts, paying (at the time of writing) a maximum annual rate of 2%. Obviously the 0.85% annual charge will take its toll, but even then the cash returns are streets ahead of the competition, so well done Fair Investment.
The annual charges are taken from the SIPP's cash account, so you need to keep at least 2% of your pension in cash for this purpose.
All in all I think this is a good attempt at creating a low cost SIPP with wide investor appeal - especially to those that like holding structured products and cash. The trouble is, I'm struggling to find a compelling reason to use Fair Investment's SIPP when there are generally better deals available for most investment scenarios.