Working out which low-cost self-invested personal pension (Sipp) provider will give you the best value for money is a daunting task that could leave you with a headache as you wade through complex charges and endless investment options. But we're here to help you find the right provider to suit your needs and lay out the credentials of some of our favourite offerings.
To find the best arrangement, you first need to consider a few different factors: How much will you be charged to use the Sipp? Does the level of service match your needs? And is the company financially strong enough to keep your money safe?
Overall, charges have not changed much over the past few years, but providers have varying charges applying to different functions of the Sipp, which over time will affect the cost of using it, depending on your investing style. Fund rebates also play a big part in deciphering how much of your money your provider will scrape away, so we advise you to do your homework on finding out which funds come with rebates and which ones don't. Generally, the cheapest funds such as trackers are not rebated as the fees are too low to warrant a further cut from the commission, so check your funds before assuming a rebate will apply.
What should I avoid?
■ Financial instability. You need to be able to sleep at night, safe in the knowledge your money is being looked after by a financially secure company. The Financial Services Authority (FSA) says a Sipp provider must provide a minimum capital requirement of six weeks, but this level looks set to rise to 13 weeks as it is clamping down on bad companies, which it warned in a report last week, could cause "considerable detriment to the consumer". Companies that only just meet the minimum requirement are likely to soon have to bolster their reserves, potentially driving up costs. Patrick Connolly, wealth planner at AWD Chase De Vere, says you should avoid companies that don't exceed the FSA minimum standard, as they're likely to ramp up charges to cover the costs when the rules get tougher.
■ Unnecessary risk. Opt for a provider where basic Sipps are the core business to completely protect your money from highly-risky esoteric investments. This does not mean to say providers offering higher-risk Sipp investments couldn't provide a good basic offering, but there may be more chance of the company going bust. Better than going with a provider just 'dabbling' in basic Sipps, choosing one with more focus on them is likely to better in the long term.
Sipp safety checklist:
■ Go for a Sipp where the average holding is similar to your pot size;
■ Make sure the services meet your needs;
■ Check out the financial strength of the company before investing;
■ Be extra scrupulous when eyeing up Sipps that are new to the market;
■ Do your homework on rebates as they can make a big difference.
Which is the right Sipp for me?
Differences in charging structures mean that some types of investor profiles will better suit some Sipps than others. Over time, the charges will eat away at your pot so you need to make sure you're in the one that makes the most sense for you. Choosing the wrong Sipp could cost you thousands in unnecessary fees, warns Phillip Bray, marketing manager at Investment Sense.
We've mapped out five investor profiles and chosen the Sipps from our shortlist that could suit your needs and help you get on the path to finding the right provider, but we recommend you do some proper reading around before making a final decision.
You're a fund investor who buys funds based around your own research and periodic reviews of your investments
Top picks: Sippdeal & Bestinvest
Consider: Alliance Trust & Fidelity.
Each online Sipp providers offers different levels of fund rebates, so your choice of Sipp provider should very much depend on the mix of funds you buy.
Best Invest and Sippdeal give commission rebates on a large number of funds, and they won't charge an annual fee for most funds (Sippdeal has 2,200 funds which rebate commission).
And if you want to diversify away from funds and consider other forms of investing - for example, ETFs, investment trusts or structured products - these are all available within the Best Invest and Sippdeal Sipps.
Alliance Trust's annual fee is larger but it gives back all the commission fund managers receive, which could prove very attractive if you've got a large portfolio.
And if you've got over £100,000 in your pot, Fidelity could be a good choice as it has no initial or annual fee and offers rebates over this amount.
You're a day-trader who buys and sells shares several times a day
Top picks: Hargreaves Lansdown & Sippdeal
You need to keep the costs of each deal down. If you're making more than 20 share trades online per month, then Hargreaves Lansdown or Sippdeal could help you do this. Hargreaves Lansdown charges £5.95 per trade when you do more than 20 transactions each month, and Sippdeal is even lower at £4.95.
Hargreaves Lansdown has a custody charge of 0.5 per cent per year although this is capped at £200. Sippdeal has no custody charge for holding shares.
You're a stockpicker who trades approximately 10 times or less per month (much less frequently than day-traders)
Top picks: Sippdeal & Bestinvest
Sippdeal has no annual fee and low trading costs at £9.95 per trade if you want less than nine trades per month, and charges £4.95 for subsequent trades.
If you've got more than £50,000 invested, you could also consider Best Invest. You'll pay £7.50 per online trade on top of an annual fee of £100 plus VAT.
You're a long-term investor who buys shares to hold. You trade perhaps once or twice a year
Top picks: Sippdeal
Keeping fixed costs low is key for keeping your costs down. Sippdeal has no annual charge and each online trade will only cost £9.95 each; such a cost-effective charging structure makes it hard to look elsewhere.
You buy both funds and shares, mostly with a buy-and-hold strategy, only trading around 10 times per year
Top picks: Sippdeal, Bestinvest
Consider: Alliance Trust
Combination investors like you should look for a Sipp with no initial or annual charges.
Providing you choose funds from Sippdeal's list of 2,200 which give rebates, the online dealing costs look very competitive. If you have over £50,000 invested then Best Invest is worth consideration because dealing costs are cheaper, although you'd have to do enough deals to make up for their £100 + VAT annual charge.
And because it rebates all commission, Alliance Trust could also be a worthy choice, especially if funds make up a large proportion of the assets within your portfolio.
