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Sipps: can you afford the pensions of the future?

Which? research highlights high Sipp charges


Sipps are becoming more popular but beware of high charges

Self-invested personal pensions (Sipps) are being considered by more retirees, but charges on this type of pension can vary hugely. Which? reveals how these charges can end up costing retirees thousands of pounds.  

Sipps are becoming more popular

Sipps offer a pension with wide investment choice and the flexibility to take income. In the wake of pension freedoms, they are shifting toward the mainstream and are used by more savers who want to grow their pensions by investing in a wide range of funds, bonds and shares. 

They allow people to transfer all of their pension in one place, keep the money invested if they want to grow it and enable retirees to take income flexibly when they want to.

Managing a Sipp can, however, come at a considerable cost. Which? has analysed 14 of the largest investment brokers and so-called ‘low cost’ Sipps, which are provided by fund supermarkets and bought off the shelf by investors that don’t use a financial adviser.

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Sipp charges can vary considerably

Our research finds that headline rates will only give investors some of the story and high charges can end up costing savers thousands of pounds:

  • Barclays Stockbrokers is the most expensive: combining an annual administration charge of £186, a platform fee of 0.35% and high pension-transfer charges to reach a total of £1,041 in the first year.
  • Providers offering only fixed fees were the most cost-effective option in our analysis.
  • Even with higher dealing costs, Alliance Trust Savings (£341), The Share Centre (£343.80) and Interactive Investor (£376) were up to £700 cheaper than the most expensive example.
  • Barclays Stockbrokers and James Hay will become less expensive in year two as you won’t have to pay pension-transfer fees.
  • Results change for smaller pots: when we examined the price of having £50,000 in a Sipp across five funds, Hargreaves Lansdown (£225) and Bestinvest (£150) were much more competitive.

The full results are detailed below. We compared the costs for someone transferring three pensions totalling £200,000 into a Sipp: £150,000 put into funds and £50,000 into shares. The charges incurred by 10 online trades (five into funds, five into shares), plus platform charges over the first year were included.

The costs of managing a Sipp
  Annual admin fee Pension-transfer fees Annual platform fees (%) Annual platform fees (£) Dealing charges Total cost over 1st year
Alliance Trust Savings £216 n/a n/a n/a £125f £341
The Share Centre £172.80 n/a n/a n/a £171g £343.80
Interactive Investor £96 £180 n/a n/a £100h £376
Halifax Share Dealing £180 £180 n/a n/a £125i £485
Charles Stanley Direct n/a n/a 0.25%a £447.92 £57.50j £505.42
AJ Bell Youinvest n/a n/a 0.25%b £475 £57.25k £532.25
Close Brothers n/a n/a 0.25%c £500 £44.75l £544.75
Fidelity £0 £0 0.35% £525 £45m £570
Selftrade £118.80 n/a 0.25%/0.3%d £400 £58.75n £577.55
Bestinvest n/a n/a 0.3%c £600 £37.50o £637.50
James Hay £195 £150 0.18% £270 £75p £690
TD Direct Investing £240 n/a 0.3% £450 £62.50q £752.50
Hargreaves Lansdown n/a n/a 0.45%e £875 £59.75r £934.75
Barclays Stockbrokers £186 £270 0.35% £525 £59.75s £1,040.75

Table notes:
aThe 0.25% custody charge on shares is waived for each month there is a chargeable trade. bFunds and shares (max £25 per quarter) charged at 0.25%. cFee applies to entire £200k. dCharge is 0.3% on first 50k; 0.25% above that. eCost of holding shares is capped at £200 per year.f10 x £12.50. gDealing option (frequent) is £20+VAT per quarter and 10 x £7.50. You don’t pay quarterly fee if you don’t trade in that period. hQuarterly fee of £20 (2 trades per quarter are free). i10 x £12.50. jShares only: 5 x £11.50. kFunds: 5 x £1.50; shares 5 x £9.95. lShares only: 5 x £8.95. mFidelity doesn’t offer share dealing; £50k invested in investment trusts instead and service fee capped at £45. nShares only 5 x £11.75. oShares only: 5 x £7.50. pShares only: 5 x £15. qShares only: 5 x £12.50. rShares only: 5 x £11.95. sShares only: 5 x £11.95.

Investors should do their homework

Harry Rose, Which? Money editor, said: ‘While choosing what to do with your hard-earned pension savings shouldn’t just be about cost, even the smallest fees over time can make a startling difference to the size of your retirement pot.

‘Investors should do their homework: some fees cannot be avoided but there may be cheaper options available. 

‘Watch out for expensive exit fees, check any benefits to do with your pension before transferring and speak to Pension Wise or a financial adviser.’

Consumers considering transferring pensions should check:

  • Exit fees: some pension providers charge substantial exit penalties to take money out of your pension, so it’s worth checking out the charges first.
  • Guaranteed annuity rates: some personal pensions taken out a long time ago have attractive guaranteed annuity rates written into them, which you may not want to surrender.
  • Death benefits: some defined benefit and personal pensions have attractive death benefits – paying an income to your spouse when you die – which you may lose if you decide to transfer out.  

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