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Guide to Low cost SIPPs

Self-invested personal pensions (SIPPs) were once the preserve of the wealthy due to high charges making small investments prohibitive. But increased competition in recent years has driven down costs dramatically, to the point low cost SIPPs are now viable for most of us when saving for retirement.

What are SIPPs?

A SIPP is like any other money purchase pension (i.e. one where you invest the money to try and build up a nest egg that provides income during retirement), with the exception that it offers a very wide choice of investments. This should include unit/investment trusts, shares and exchange traded funds. You can read more about SIPPs on our SIPP page.

Action Points

1. Do you really need a SIPP?

If you only want to hold a handful of managed/tracker funds and aren't interested in shares, then probably not. One of the better stakeholder pensions on the market should cost effectively meet your needs, especially if just contributing a few thousand pounds or saving less than £50 per month.

2. Is a low cost SIPP suitable?

The main compromises when using low cost SIPPs versus more expensive variants are not being able to hold commercial property (buildings) in your pension fund and being tied to a single cash account.

The latter can become a big issue if you expect to hold sizeable cash balances as interest rates are usually derisory, in some cases zero percent. This is a nice earner for low cost SIPP providers (they'll earn more interest on the money elsewhere and pocket the difference), so don't expect the situation to improve.

3. Review investment choice

The main reason for using a SIPP is investment choice, so make sure the investment(s) you want to hold are available. While all low cost SIPPs tend to offer in excess of 1,000 funds, choice does vary so if you're seeking a small or esoteric fund you may find it's available via some SIPPs but not others. Shares should be available but you might be restricted to those listed in the UK, so if you wish to buy shares listed overseas check whether they're available.

4. Can you draw an income during retirement?

Drawing an income from your pension during retirement (in preference to buying an annuity) is becoming more common. SIPP providers normally charge for this facility so check how much.

5. What kind of service do you need?

The cheapest SIPPs don't pay sales commissions to financial advisers, so if you need advice expect to pay more. Some low cost SIPPs provide fund research as part of the deal, but you'll still have to make your own investment decisions.

6. Check charges

While low cost SIPP charges should be reasonable, some are more so than others (see the comparison below). The main charges to look out for are:

Annual SIPP charge - some providers charge an annual fee for the SIPP 'wrapper', this is separate to any annual costs on the underlying investments.

Dealing fees - while you'd expect to pay dealing fees for buying and selling shares, some providers apply this to funds too. If you plan to trade a lot then check how competitive the charge is.

Fund charges/trail commission rebates - fund charges should be the same as those charged by the fund manager directly, but the SIPP provider might reduce these 'standard' charges by rebating commission and/or other fees they receive from the fund groups. Annual charge (trail commission) rebates are especially valuable as you'll benefit for as long as you hold the fund.

Income drawdown - as mentioned above, do any charges apply if you decide to draw an income during retirement instead of buying an annuity?

Transfer penalties - if you decide to move your SIPP to another provider in future, will you be charged to do so?

7. Choose the underlying investments

There's little point opening a SIPP then buying a bunch of mediocre investments, or biting off more risk than you chew. Choose your investments carefully, ensure they're appropriate for what you're trying to achieve and keep an eye on them in future.

Low cost SIPP Comparison

APOLOGIES: These tables are rather out of date, I shall be fully updating once the current raft of platform/discount broker pricing changes are complete. Meanwhile we have a dynamic comparison tool at www.comparefundplatforms.com, compare costs and features for your own selection of funds.

While not exhaustive, the comparison below includes the more popular low cost SIPPs on the market.

Funds Only

How we carried out the comparison
We split £100,000 between 8 popular funds to represent a typical SIPP portfolio and calculated projected returns over 20 years (assuming 7% gross annual growth and 2 notional fund switches a year) taking into account annual fund charges (TER), trail commission rebates and any fees charged by the SIPP provider. The equivalent annual charge reflecting all these costs was also calculated.

Note: for the purpose of comparison we've assumed trail commission rebates offset the annual fund charge, in practice this might not be possible with rebates given as cash, giving you the choice whether to re-invest. The funds used were: Aberdeen Emerging Markets, HSBC FTSE All Share Tracker, Investec Enhanced Natural Resourecs, Invesco Perpetual High Income, M&G Global Dividend, M&G Optimal Income, Standard Life Global Absolute Return Strategies, SWIP Property.

ProviderSIPPExample £100,000 SIPP Portfolio*Fund Switch Charge?Cash Rates ?
Projected Value ?Equivalent Annual Cost ?
Alliance Trust Savings Select SIPP £320,514 1.00% £25 dealing fees 0%
Notes: Clean fund charges. £162 annual fee plus £12.50 fee per deal. £1.50 monthly dealing available.
Candid Verdict: Excellent value thanks to 'clean' fund charges and low annual fee, although dealing fees could become excessive if you switch funds frequently.
Interactive Investor SIPP £318,700 1.03% £20 dealing fees 0.5%
Notes: Enhanced full commission rebates. £144 annual charge (family accounts can be combined) plus £10 fee per deal. £360 fee to transfer out.
Candid Verdict: Excellent value thanks to generous annual fund charge rebates, but excessive charge if you decide to transfer out in future.
James Hay iSIPP £309,996 1.18% No 0%-3.5%
Notes: Partial to full trail commission rebates. £180 annual charge.
Candid Verdict: Good value thanks to decent annual fund charge rebates, but high annual fee unappealing for smaller portfolios. Range of cash accounts.
Club Finance Skandia CRA £309,168 1.19% No 0%
Notes: Discount broker offering 75% trail commission rebates on Skandia pension. £68.50 annual Skandia charge. Funds only.
Candid Verdict: Skandia pension offers some low cost funds in addition to mainstream and a potentially good buy via Club Finance.
Cavendish Online FundsNetwork SIPP £307,127 1.23% No 0.1%
Notes: Discount broker offering full trail commission rebate on FundsNetwork SIPP. £116 initial and £291 annual FundsNetwork charges.
Candid Verdict: Full trail commission rebates although high FundsNetwork fees reduce value, especially for smaller portfolios.
Bestinvest Select SIPP £302,217 1.31% No 0%-0.25%
Notes: Partial trail commission rebates. Extensive fund research available. No annual charge provided trail commission paying funds held.
Candid Verdict: Reasonable trail commission rebates and research could be useful, but lags cheaper competitors, especially on larger portfolios.
Barclays SIPP £302,038 1.32% No 0%
Notes: Partial trail commission rebates (not guaranteed beyond 2012). No annual charge provided mainstream funds held.
Candid Verdict: Reasonable trail commission rebates, but these might end from 2013. Can't see any reason to use over more compelling competitors.
Hargreaves Lansdown Vantage SIPP £299,194 1.37% No 0%-0.25%
Notes: Partial trail commission rebates. No annual charge, although £12-£24 p.a. may apply to certain funds paying no trail commission.
Candid Verdict: Extensive research available, but low trail commisison rebates. Little reason to use unless you have a small portfolio that won't incur the extra fees.
Sippdeal SIPP £297,448 1.40% £19.90 dealing fees 0.05%-0.10%
Notes: Partial trail commission rebates. No annual charge, but £9.95 dealing fee.
Candid Verdict: Trail commission rebates look stingy and dealing fees a pain. However, no annual fee appealing for small portfolios.
Last updated: 20 February 2013.

Shares Only

How we carried out the comparison
We assumed a £100,000 SIPP portfolio of 10 shares with 4 trades (i.e. 2 sell/buys) a year and calculated projected returns over 20 years (assuming 7% gross annual growth) taking into account SIPP and dealing fees. The equivalent annual charge reflecting all these costs was also calculated.

ProviderSIPPExample £100,000 SIPP Portfolio*Annual FeeDealing Fee
Projected Value ?Equivalent Annual Cost ?
Sippdeal SIPP £384,992 0.03% Nil £9.95
Notes: £90 to transfer elsewhere.
Candid Verdict: Great value as no annual fee and competitive dealing fee.
Bestinvest Select SIPP £380,559 0.09% £120 £7.50-£12.50
Notes: £25 per asset to transfer elsewhere. £7.50 dealing if portfolio above £50,000.
Candid Verdict: Low dealing fee and reasonable annual charge, but lags the cheapest.
Interactive Investor SIPP £379,078 0.11% £144 £10
Notes: £360 plus £15 per asset to transfer elsewhere. £1.50 monthly dealing available.
Candid Verdict: Reasonable deal, but cheaper alternatives for shares only.
Alliance Trust Savings Select SIPP £377,844 0.13% £162 £12.50
Notes: £125 plus £20 per asset to transfer elsewhere. £1.50 monthly dealing available.
Candid Verdict: Annual and dealing fee a little off the pace, hard to recommend for shares only.
James Hay iSIPP £376,609 0.15% £180 £15
Notes: £150 transfer elsewhere.
Candid Verdict: Charges on the high side, use a cheaper alternative for shares only.
Hargreaves Lansdown Vantage SIPP £376,395 0.15% 0.5% capped at £200 £5.95-£11.95
Notes: £90 plus £30 per asset to transfer elsewhere. £5.95 dealing if 20+ deals in previous month.
Candid Verdict: Charges too high versus cheaper competitors, although research available.
Barclays SIPP £374,557 0.17% £240 £12.95
Notes: £90 plus £15 per asset to transfer elsewhere.
Candid Verdict: Charges well off the pace. Can't see a reason to use.
Last updated: 20 February 2013.

Funds & Shares

How we carried out the comparison
We assumed a £100,000 SIPP portfolio, with half invested in the same 8 funds as the 'funds only' comparison above with 2 notional fund switches a year and the other half in 5 shares with 2 trades (i.e. 1 sell/buy) a year and calculated projected returns over 20 years (assuming 7% gross annual growth) taking into account SIPP and dealing fees. The equivalent annual charge reflecting all these costs was also calculated.

ProviderSIPPAnnual FeeExample £100,000 SIPP Portfolio*
Projected Value ?Equivalent Annual Cost ?
Interactive Investor SIPP £144 £348,192 0.56%
Notes: £10 dealing fee applies to funds and shares. £360 charge to transfer out.
Candid Verdict: Excellent overall value for larger portfolios thanks to enhanced trail commission rebates. Beware high transfer out fee.
Alliance Trust Savings Select SIPP £162 £346,972 0.58%
Notes: £12.50 dealing fee applies to funds and shares.
Candid Verdict: Great overall value for larger portfolios thanks to enhanced trail commission rebates.
James Hay iSIPP £180 £343,314 0.64%
Notes: £15 dealing fee applies to shares only.
Candid Verdict: Charges a bit high, but can still be worthwhile thanks to generous trail commission rebates.
Sippdeal SIPP Nil £340,531 0.68%
Notes: £9.95 dealing fee applies to funds and shares.
Candid Verdict: Good value for smaller portfolios, but less so for larger.
Bestinvest Select SIPP £120 £339,303 0.70%
Notes: £7.50 dealing fee applies to shares only.
Candid Verdict: Trail commission rebates too low to make this SIPP truly competitive, but research might prove helpful.
Barclays SIPP £240 £334,115 0.78%
Notes: £12.95 dealing fee applies to shares only.
Candid Verdict: High fees and lacklustre trail commission rebates make this a SIPP to miss.
Hargreaves Lansdown Vantage SIPP 0.5% capped at £200 £333,838 0.79%
Notes: £11.95 dealing fee applies to shares only.
Candid Verdict: High charges and low trail commission rebates make this SIPP look surprisingly expensive versus the competition.
Last updated: 20 February 2013.

Note: All projections based on current charges, these could (and very likely will) change in future.

Useful links

You can read more about SIPPs on our SIPP page.

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