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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.

Last updated: 17 March 2017.

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 cheaper 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, often zero percent. This can be 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 tend to 'no frills'. If you want guidance and fund research as part of the deal you may need to focus on mid to higher priced.

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.

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

We have a dynamic comparison tool at www.comparefundplatforms.com, where you can compare costs and features based on your own crieria.

To help you find an attractive deal we’ve compared a number of SIPPs using some typical scenarios.

How we carried out the comparison
We have assumed 3 scenarios: holding funds only, holding shares only and a 50/50 mix of the two, with assumed annual growth of 7% before charges and any initial dealing fees. As the impact of some platform/broker charges changes with investment size, we assumed portfolios of £10,000 (4 shares/funds, 2 of each if 50/50, with 2 deals a year) and £100,000 (10 shares/funds, 5 of each if 50/50, with 4 deals a year).

The comparison shows the lost return due to platform/broker charges over 10 years (all links are unpaid). Ranked on £100,000 funds only cost.

Platform/BrokerFUNDS ONLYSHARES ONLYFUNDS & SHARES
£10,000£100,000£10,000£100,000£10,000£100,000
iWeb £1,473 £2,966 £1,473 £2,966 £1,473 £2,966
Notes: £90 a year up to £50,000 and £180 above. £5 per deal.
Candid Verdict: Low cost if you don't trade funds very frequently but, be warned, awful website and basic service.
Halifax Sharedealing £1,747 £3,543 £1,747 £3,543 £1,747 £3,543
Notes: £90 a year up to £50,000 and £180 above. £12.50 per deal.
Candid Verdict: Low cost if you don't trade funds very frequently.
Interactive Investor £2,602 £2,720 £2,602 £2,720 £2,602 £2,720
Notes: Flat £176 annual SIPP charge (includes 2 free deals per quarter & family accounts can combine), £10 per deal (£1.50 monthly dealing).
Candid Verdict: Good value on larger portfolios thanks to fixed annual platform fees, especially if you don't trade frequently.
Alliance Trust Savings £3,691 £3,809 £3,691 £3,809 £3,691 £3,809
Notes: Flat £252 annual SIPP fee (includes 4 deals) plus £9.99 per deal (£1.50 monthly dealing).
Candid Verdict: Good value on larger portfolios thanks to fixed annual platform fees, especially if you don't trade frequently.
Trustnet Direct £815 £3,450 £815 £3,450 £815 £3,450
Notes: 0.25% annual SIPP fee, minimum £20 maximum £200. Fund and share dealing up to £10 per deal.
Candid Verdict: Good value for funds, less so for shares. Lots of fund information and tools.
Cavendish Online £455 £4,547 N/A N/A N/A N/A
Notes: Uses the Fidelity platform and costs 0.25% a year, falling to 0.20% on portfolios above £200,000 (includes 0.05% Cavendish fee). No fund dealing fees.
Candid Verdict: Very good value for small to mid sized portfolios - especially if you want to use Fidelity's platform.
Charles Stanley Direct £2,153 £6,245 £2,542 £4,640 £2,407 £6,447
Notes: £120 annual SIPP fee plus 0.25%, falling to 0.15% above £500,000. No fund dealing fees but shares £10 per deal.
Candid Verdict: Expoensive for shares and larger portfolios.
Close Brothers £455 £4,547 £777 £5,226 £616 £4,887
Notes: 0.25% annual SIPP fee on funds and shares. No fund dealing fees, shares £8.95 per deal.
Candid Verdict: Very good value for small to mid sized fund portfolios. More expoensive for shares and larger portfolios.
AJ Bell Youinvest £509 £4,661 £843 £2,199 £676 £4,146
Notes: 0.25% annual SIPP fee on first £250,000, then 0.10% up to £1m and 0.05% above, capped at £25 per quarter for shares. Funds £1.50 per deal and shares up to £9.95.
Candid Verdict: Good value for smaller fund SIPPs, but gets more expensive if you hold shares and on larger portfolios.
Strawberry £2,464 £7,279 £2,911 £8,824 £2,687 £7,752
Notes: £120 plus 0.35% annual SIPP charge on portfolios below £50,000, 0.25% up to £1m or 0.10% if above, plus £10 annual fee. No fund dealing charge, shares £12.50 per deal.
Candid Verdict: Expensive with insufficient redeeming features to merit using.
Willis Owen £2,340 £7,394 £2,606 £7,964 £2,473 £7,679
Notes: £132 plus 0.40% annual platform SIPP fee on first £50,000, 0.30% on next £100,000, 0.20% on next £250,000 then 0.15% on balance. £7.50 share dealing fee, fund dealing free.
Candid Verdict:Relatively expensive, especially for shares.
Fidelity £634 £6,341 N/A N/A N/A N/A
Notes: 0.35% annual SIPP fee on portfolios up to £250,000, or 0.20% on those above. No fund dealing fee.
Candid Verdict: Good value on small to mid sized portfolios, but less so on larger. Clunky website when managing your portfolio.
Bestinvest £544 £5,445 £814 £6,012 £679 £5,728
Notes: 0.30% annual platform SIPP fee on first £250,000, then 0.20% up to £1m. No fund dealing fee, shares £7.50 per deal.
Candid Verdict: Good quality fund research and online portfolio analysis tool. Good value on saller portfolios but less so on larger.
Hargreaves Lansdown £812 £8,118 £1,082 £1,566 £1,051 £5,164
Notes: 0.45% annual SIPP fee on first £250,000, 0.25% on next £750,000 then 0.10% on next £1m. Shares cost 0.45% a year capped at £45. No fund dealing fees, shares up to £11.95 per deal.
Candid Verdict: Generally good reputation for service and plenty of information available, but relatively expensive for mid to larger portfolios.

Questions

How do platform SIPPs work?

Platforms are the administration services that ultimately hold your funds/shares, the main benefits being access to lower cost 'clean' fund versions, holding everything in one place and viewing your portfolio online. You can buy direct from most platforms, although a few only sell via discount brokers. The latter will usually levy their own fee, but might provide research, guidance or platform discounts to help justify this.

Are all platforms the same?

No. Charges vary. And while some provide potentially useful research, others simply offer a ‘no-frills’ bargain basement transaction service.

Should I buy direct from a platform?

If you’re comfortable making your own investment decisions, then yes. You’ll normally get a cheaper deal compared to investing directly with a fund provider and save on advice charges you'd incur via a financial adviser.

However, if you need help then don’t underestimate the value of good independent financial advice. Granted, not all advisers are worth their salt, but there are some good ones out there.

What service can I expect?

Not much, you’re generally on your own. However, some platforms and discount brokers do publish guidance and research, which you might find helpful. At its most basic this might simply be a few suggested fund choices, although a handful of brokers do publish more extensive research including updates on whether a fund is worth continuing to hold following manager changes etc.

Can I move between platforms?

Yes, you need to transfer your SIPP between platforms, either as cash or 'as is' (called 'in-specie'). Fees may apply for either or both, so check with your existing platform.