In my experience SIPP investors come in three kinds. Firstly there are those who only want to invest in funds and some directly held assets; a Personal Pension won’t let them hold shares directly, they therefore need to use a SIPP. The second group want the same as the first but also require the ability to be able to add in structured products or deposit accounts and the final group are the property investors who tend, although not always, just to invest in property.
We all know that the final return you receive from any investment is dictated not only by the performance of the assets you buy, but also but how much is taken away from you in tax and charges.
It is the charges paid by the first group of SIPP investors that I want to focus on here looking at what they can expect to pay for their SIPP wrapper and what they get in return. Do you get more if you pay more?
SIPP providers levy their charges in one of two ways, either a fixed fee or a percentage based fee. Percentage based fees tend to be charged by the more traditional life assurance companies, the more bespoke SIPP providers tend to charge fixed fees.
As a rule of thumb the larger your fund the more likely you are to be better off on a fixed fee.
SIPP providers charge for a whole range of things, often even calculating how much will be paid to your estate on your death! However, those people looking to invest in funds and directly into assets should focus on the initial charge, ongoing charges, the cost of transferring in and also the cost of leaving your chosen provider if you decide your SIPP future lies elsewhere.
What do you get for your money?
It isn’t all about charges, look at what you get for your money; after all, there is little point in going for a cheap SIPP only to be limited to one expensive trading platform.
You also need to think about any periods you may have out of your chosen market, we all know deposit rates are derisory at the moment, which makes shopping about for the best rate you can possibly get even more important. Despite the large range of ‘sippable’ deposit accounts which are available at the moment many SIPP providers will not allow access to any account other than the nominated SIPP account, which generally pay an interest rate of around or less than bank base rate. For example the UK’s largest provider of SIPPs, Hargreaves Lansdown, pays just 0.25% on deposits over £50,000 and even less on smaller deposits.
The table below summarises charges and functionality for a number of well known, and indeed some less well known SIPPs:
|SIPP Provider||Initial charge||Ongoing charge||Cost of transferring (assuming a non protected rights cash transfer)||Platform access||Unrestricted access to ‘sippable’ deposit accounts?||Availability|
|Alliance Trust||None||£125||£50||In house platform only||No||Direct & via an IFA|
|@sipp||£150||£365||None||Unrestricted access||Yes||Direct and via an IFA|
|Bestinvest||None||None||None||In house platform only||No||Direct only|
|Hargreaves Lansdown||None||None||None for the majority of funds. 0.5% per year (capped at £200) if investing in directly held assets||In house platform only||No||Direct only|
|Suffolk Life Smart SIPP||None||None||None||Panel of platforms to choose from||No||Via an IFA initially then deals can be placed by investor or IFA|
VAT may be payable on these fees
Other fees may be payable depending on your circumstances
Reviewing the cost of your SIPP can be a worthwhile exercise, but don’t let the charges tail wag the investment dog, make sure you get the functionality you need at an acceptable price.
If you have a favourite platform on which you like to trade the chances are you will need to go for a SIPP which allows unrestricted platform access, there are plenty of these around and they don’t have to cost the Earth. If however you are prepared to accept an in house platform then you could potentially cut out certainly the initial charge and in some cases the annual fee.
For people who spend most of their time fully invested having unrestricted access to deposit accounts is probably not that important to them. Others though often hold sizeable portions of their SIPP in cash, for these people it is important not to be restricted in the choice of deposit accounts.
So, do you get more if you pay more? The answer is probably a qualified ‘yes’, but check that you need it in the first place!