Self-invested personal pensions (Sipps) have become the most popular vehicle in retirement in recent years. Despite being introduced almost 25 years ago, their surge in popularity only really started in the past decade. This was largely due to plummeting rates on guaranteed income products, such as annuities, and the introduction of pension freedoms in 2015, which allowed investors to fully access their pension pots. If you choose an income drawdown option, then you must use a Sipp. As a result, Sipp sales now outstrip annuities sales by five to one, according to Financial Conduct Authority (FCA) data.
Initially geared towards the more savvy investor, the proliferation of new providers to meet the growing demand has meant that Sipps now appeal to a wider audience; from experienced investors managing their own pension funds to others looking for a simple, flexible method of building, or drawing from, retirement funds.
So, upon deciding that a Sipp is the most suitable product, what are the important considerations? Firstly, Sipps are split into two types: full and simple (or lite). The former offers a broad suite of investment options including commercial property, whereas the latter caters for simple strategies, and subsequently has lower costs. Which type of Sipp is appropriate therefore boils down to the simplicity or sophistication an investor requires.
Full Sipps will be most suitable for experienced investors with large pots who require a high level of sophistication, such as investing in commercial property, either now or in the future. A perk of using a Sipp to invest in commercial property is that, upon sale, any proceeds should be completely free of capital gains tax, potentially saving thousands of pounds. However, charges (as the table overleaf shows) for full Sipps can be high, and therefore investors with smaller pots or whose investment needs are basic, such as investing in a bucket of mixed equity funds with some share trading, will find better value with a simple Sipp.
Cost is not the only consideration, but understandably many investors will place this front and centre when choosing a provider, as charges can erode both capital and potential income. But a challenge for investors, for comparison purposes at least, is that there is no uniform charging structure across providers. To complicate things further, some providers include VAT on transactions (such as opening an account, annual administration, closure and transferring out) in the quoted fee, while others do not.
To help put this into context, we have compiled a table showing the breadth of charges offered by 16 of the market’s main companies. Charges are applied in two ways: either a fixed amount or as a percentage of the value. These are then deducted either as a one-off payment, or annually – the initial set-up cost of the plan is an example of the former. As the table overleaf shows, these range from zero, which is the case for the majority, to up to £400.
Flat fees, by their nature, are more beneficial to those with larger pots, and percentage-based ones better for smaller pots. Bestinvest’s £100 annual administration fee is a case in point, as a £50,000 fund will pay a higher percentage equivalent than, say, a fund four times the size.
Large pots should also benefit from tiered account charges. AJ Bell Youinvest adopts a tiered approach, where portions of the fund attract lower rates of fees. This plan is particularly competitive, with a maximum account charge of just 0.25 per cent per year. For a plan holding funds, Hargreaves Lansdown charges 0.45 per cent on the first £250,000, 0.25 per cent on amounts between £250,000 and £1m, 0.1 per cent on £1m-£2m, and no charge on amounts over £2m. So, on a £250,000 Sipp the customer would pay £900 a year (0.45 per cent). For a £500,000 Sipp the customer would pay £1,125 on the first £250k (0.45 per cent), and £625 on the next £250k (0.25 per cent), totalling £1,750. The effective account charge for the pot is therefore 0.35 per cent. HL doesn’t charge for setting up, administering and transferring into the plan. For shareholdings, charges are capped at the higher of 0.45 per cent or £200.
Fidelity’s account charges are also on a tiered basis, with a maximum of 0.35 per cent. Transaction costs and dividend reinvestment are charged at £10 and £1.50, respectively.
Those wishing to make regular trades should pay close attention to transaction costs, with charges varying from £5 to £12.50. James Hay, however, offers this service for free, providing deals are made online.
It is important to note that any funds selected will incur additional fees.
The facility to invest in commercial property is a key attraction of Sipps, but its complexity means a specialist provider such as Barnet Waddingham or Curtis Banks should be selected. For this reason, costs can be steep, and include set-up and annual charges for both the property and mortgage (if applicable), plus annual rental fees per tenant.
Those considering transferring a property into a Sipp should cast their eyes over in-specie charges. This is where assets such as shares or property are moved into a Sipp without being converted into cash first. The table shows a large disparity on this front, with some providing the service for free and others such as Rowanmoor charging hundreds of pounds. However, whether in-specie transfers will even be accepted in the future is currently being battled out in court. Historically, Sipp firms have claimed tax relief for consumers making in-specie transfers. But in October 2016, it was reported that HMRC had blocked tax relief claims at 26 Sipp firms. One provider, Sippchoice, challenged the HMRC, and in early 2018 a first tier tribunal ruled in its favour. However, HMRC has since won the right to an appeal, with the court date set for either 20, 21 or 22 May 2019. In the meantime, some Sipp providers are refusing to acceptin-specie transfers for fear of future reprisal.
In the case of an investor becoming unhappy with an existing provider or finding they do not permit a certain type of asset to be held, there is the option to transfer. This can potentially be pricey, especially if both the existing and ceding providers apply a transfer charge. But this can be avoided in most cases.
In conclusion, there are a number of factors to consider when choosing a Sipp provider. And, as the plan types and charges suggest, it would be wise for investors to consider both their current and future objectives.
|Provider||Minimum contributions||Number of funds||Set up||Annual/admin||Transfer in||Transfer out||Account / Fund charges||Transaction charges||Dividend reinvestment||Drawdown||In-specie||Closure||Telephone dealing|
|AJ Bell Youinvest||£1k single, no min for regular||Over 2,500||0||0||0-£100||£75||First £250k 0.25% / £250k-£1m 0.1% / £1m-£2m 0.05% / over £2m no charge||Funds £1.50. shares £9.95||1% (max £9.95)||£25 ad hoc, £100 pa regular||£25 per holding plus £75||£295 if closed within 12 months||£29.95|
|Alliance Trust Savings||£50pm||4,000 (investments)||0||£17.50 savings / £23.75 income per month||£15 for maturing employee share scheme / £150 for safeguarded benefits||No charge if over age 55, otherwise max of 1% of value or £150||Specific to fund||£9.99 online / £50 post||£5||0||0||0||£50|
|Barnet Waddingham||No min||Whole-of-market||£100-£400||£250||0||£200||Specific to fund||0||0||£200 set up, £160 review||0||0||0|
|BestInvest||£3,600 single, £100 pm regular||Over 2,500||£0||£100||0||£75||First £250k 0.30% / £250k-£1m 0.2% / over £1m no charge||£7.50||£0.00||£100 annual, £100 initial calculation / £25 ad-hoc||£125||£75 if more than 2 years, £175 if less than||0|
|Charles Stanley Direct||£500 lump sum, £100pm||over 3,000||0||£100 if value undr £30k / 0.35% pa platform charge||0||£125||First £250k 0.35% / £250k-£1m 0.15% / £1m-£2m 0.05% / over £2m no charge||No charge for funds / Shares £11.50 online||0||£10-£150||0||£200 if closed within 24 months||0.15%-0.75%|
|Curtis Banks||No min||Whole-of-market||£200||£245-£560||0-£100||£250||Specific to fund||0||0||£120 one off, £150pa regular||£750 max||£250||0|
|Fidelity||£1k single, £250 top-up, £50 regular with at least £25k allocated to each investment||Thousands||0||0||0||0||Less than £7.5k 0.35% if regular saving (£25 otherwise) / £7.5k-£250k 0.35% / £250k-£1m 0.20% / over £1m no charge (some funds will have their own charges)||£10 online||£1.50||0||0||0||£30|
|Hargreaves Lansdown||£100 single, £25pm||over 2,500||0||0||0||£25||Funds - first £250k 0.45% / £250k-£1m 0.25% / £1m-£2m 0.1% over £2m no charge. Shares (including UK and overseas, ETFs, VCTs, gilts and bonds) 0.45% , capped at £200pa)||No charge for funds, shares from £5.95-£11.95 per deal||1% (max £10)||0||0||£25 / £295 if closed within 12 months of opening||1% of trade value (£20 min, £50 max)|
|Halifax||£1,000 single, no min for regular||Not specified||0||£90-£180pa paid quarterly||£60 per plan (max £300)||£90 + £25 per investment (max £215)||Specific to fund||£12.50 per trade||2% (max £12.50)||£180-£300||0||£90 / £300 if closed within 12 months of opening||£25 per trade|
|Interactive Investor||No min||Not specified||120||0||0||0||Specific to fund||£10-£71||£1||£120||0||£300 if closed within 12 months of opening||£40|
|IWeb||£1k single, no min for regular||Not specified||0||£90-£180pa paid quarterly||£60 per plan (max £300)||£90 + £25 per investment (max £215)||Specific to fund||£5 per trade||2% (max £5)||£180-£300||0||£90 / £300 if closed within 12 months of opening||0|
|James Hay||No min, but usually only accepts £100k if not using a financial adviser||Over 3,700||0||£179||£60 per plan (max £300)||£100||First £300k 0.25%, next £400k 0.20%, next £500k 0.15%, over £1.5m 0.05%||No charge if online, £20 for paper||0||£100 set up, £154 annual (reducing to £125 from 1 April)||£50-£200||0||0|
|Nutmeg||£5,000 single or transfer||Not specified, but prefer ETFs. Also, build portfolio for investor||0||0||0||0||First £100k 0.75%, £100k + 0.34% (plus average investment costs at 0.19% and market spreads at 0.08%)||0||0||0||0||0||0|
|Rowanmoor||No min||Whole-of-market||£100-£300||£250-£500||0||£325-£650||Specific to fund||Between 0 and £60 per trade||0||£130 set up, £150 pa||Max £650||0||0|
|The Share Centre||No min||Not specified||0||£12pm||£75 if capped drawdown, free if lexi-access||£125||Specific to fund||£7.50 per trade below £750, 1% for any above||0.50%||First free, £225 each year after / £195pa / capped drawdown review £165||0||£250||£20 up to £2,000, 1% for any above|
|Willis Owen||£25 single, £25pm||Hundreds||0||0||0||0||First £50k 0.6%, £50k-£100k 0.40%, £100k-£250k 0.25%, £250k + 0.15%||£7.50 per trade||0||0||0||0||0|
Please note, annual management charges on funds are not included
Find out more about Sipps with our special guide: