When you open a self-invested personal pension (Sipp) on an investment platform, the chances are that you'll keep your investments on it for a number of years. And while your Sipp accumulates, you should keep a close eye on what you are paying for it as charges can make a substantial difference to the value of your pot. Also consider what type service you want, as pensions are one of the more complicated areas of investment and, at some point, you may need to seek assistance from your provider.
The number of investment platforms offering Sipps has grown over the years, which this is good for investors because it has driven down their costs. But it also means that picking the most suitable platform for yourself involves more work.
The main charges you have to consider are account management fees and, when the time comes, potential drawdown charges. Platforms also charge for dealing, account set-up, dividend reinvestment, transfers in and out of your account, and account closures. So be mindful of potential extra costs.
If you have just opened your Sipp and its value is small, platforms that charge a percentage of the total assets invested are typically cheaper than those that charge a flat rate. However, as your assets grow over time a flat rate charging structure could save you a considerable amount of money.
AJ Bell Youinvest is a low-cost option for investors starting a Sipp, with account charges starting at 0.25 per cent of assets invested. This drops to 0.1 per cent for assets worth between £250,000 and £1m, 0.05 per cent for those worth between £1m and £2m, and no additional charges thereafter. Hargreaves Lansdown – the UK’s largest self-directed investment platform by assets under management – is more expensive with account fees starting at 0.45 per cent of assets invested in open-ended funds, falling to 0.25 per cent for fund assets worth £250,000 and £1m, and 0.1 per cent for fund assets worth between £1m and £2m. However, there are caps on charges for assets invested in other types of securities (see the table for more details).
If your Sipp has a higher value of, say, £100,000 or more, a flat fee platform might be more attractive. interactive investor, for example, charges a fixed fee on a monthly basis. It offers three subscription plans, the cheapest of which costs £9.99 a month and includes one free trade a month. Its 'Super Investor' plan costs £19.99 a month, but with this charges for UK and international trades are lower. interactive investor's 'Funds Fan' plan, meanwhile, costs £13.99 a month and includes two fund or investment trust trades a month, and any trades on top of this cost £3.99 each.
interactive investor has waived its Sipp platform fee until April 2021 after which it will be £10 per month. So from April 2021 you could expect to pay an account charge of just under £240 a year if you opt for its cheapest investor plan – £119.88 for the plan fee and £120 for the Sipp. And if you make more than one trade a month you would also pay for this.
By contrast, if you held a Sipp with a value of £100,000 on AJ Bell Youinvest with a platform fee of 0.25 per cent, you would pay £250 a year. This suggests that a value of £100,000 is roughly the level at which a platform with a flat fee structure will work out cheaper. However, this does not include other costs, which are set out in the table below.
Mike Barrett, consulting director at platform consultancy the lang cat, says that as your pot starts to become sizeable you should “have a look at the charges again and consider switching providers if costs are really important to you”.
But he adds that it is really important that switching doesn’t come at the expense of functionality. And it can take up to two months to switch platforms if you are transferring in specie – retaining ownership of investments rather than converting them to cash – so you will not be able to sell your investments while they are being transferred.
the lang cat has analysed how much you might pay in charges if you invest £100,000 in a Sipp over 25 years on four popular DIY investment platforms. The table below assumes an annual growth rate of 5 per cent, annual inflation rate of 2 per cent and no further investments into the Sipp. It assumes seven trades are made on each platform per year.
interactive investor Super Investor plan
AJ Bell Youinvest
Fidelity Personal Investing
Trading charges, meanwhile, vary from platform to platform. Many do not charge for fund trades, but charge between £7.50 and £12.50 for trades in listed securities such as shares, investment trusts and exchange traded funds (ETFs). There is also quite a difference in providers' levels of transfer fees. But the Financial Conduct Authority is considering banning transfer out fees, and Hargreaves Lansdown and interactive investor have already abolished theirs.
Charging structures are more complicated if you are drawing down from your pension, so even if you have not started doing that you should have a look at what the different platforms charge for this. For example, AJ Bell Youinvest and Bestinvest charge users an annual rate of £100 a year, with additional one-off income payments charged at £25. interactive investor charges users in drawdown £10 a month. Fidelity Personal Investing and Hargreaves Lansdown do not charge additional drawdown fees, which could make them more attractive for people in drawdown with smaller pots.
Using a platform with an easily navigable website and a person to speak to if you need to ask questions can save you a lot of time and stress. Research firm Platforum’s latest review of the 13 largest private investor platforms found that, generally, the largest ones are the easiest to use. It ranked AJ Bell Youinvest, interactive investor, Fidelity Personal Investing and Hargreaves Lansdown highest for ease of use.
If you value being able to speak to someone quickly, the lowest cost basic platforms may not be the best option. Platforum tested email, telephone and online customer services and found that in these respects, AJ Bell Youinest and Charles Stanley Direct came out best, with these responding to emails within half an hour. Charles Stanley Direct and Hargreaves Lansdown, meanwhile, put callers through to a person on the phone, on average, in under 30 seconds.
Jeremy Fawcett, head of Platforum, says: “Hargreaves Lansdown is more expensive than many other platforms but people [use] it because of the service – there is a reason why it has grown to be the largest [private investor] platform in the UK.
However, he adds that when selecting a platform you shouldn't just go on the big names as there maybe another one that is more suitable for your needs.
If you want to be able to access your Sipp account via a tablet or smartphone, you should consider the sophistication of a platform’s mobile service. Platforum conducted research that found that 35 per cent of those surveyed “need” mobile app features, and that AJ Bell Youinvest, Hargreaves Lansdown and interactive investor have the best mobile apps of the major platforms.
Online investment platform Wealthify, meanwhile, launched a Sipp earlier this month that you can manage via a mobile app for a charge of 0.6 per cent a year. However, similar to online wealth manager Nutmeg, Wealthify invests you in a portfolio according to your risk profile so is not suitable if you want to choose your own investments.
Choice of investments
Last month Vanguard launched one of the lowest cost Sipps available with an annual platform charge of 0.15 per cent a year, capped at £375. However, with this you can only invest in Vanguard's 77 funds, most of which are passive, so if you want a wider choice of investments it may not be a good choice. Most of the other major platforms have over 2,500 funds to choose from.
“A cheap plan is useless if it doesn’t offer the required investments,” says Mr Barrett. “Vanguard prices are really competitive, but unless you’re happy investing only in its funds, then it won’t do the job.”
And at present you can only use it for the accumulation stage of your retirement saving, because Vanguard is not adding drawdown capabilities until the 2020/21 tax year.
If you are more adventurous and want to invest directly in shares, have a look at what stock markets an investment platform offers access to. If you want to hold cash in multiple currencies, meanwhile, interactive investor might be your best option as it allows you to hold up to nine currencies in its Sipp at no extra cost.
If you want to hold assets other than funds or listed securities in your Sipp, such as commercial property, you will need to open a Sipp with a specialist provider. This is because mainstream DIY investment platforms do not offer such options. However, a so called 'full service' Sipp from a specialist provider that offers a wider choice of investments is likely to have higher charges. Curtis Banks, for example, manages more than 6,000 properties on behalf of clients and charges an annual administration fee of £260 to £560.
Mr Barrett says that if you hold commercial property in your Sipp you should be mindful of two things. “Firstly, the complexity involved means it’s worth checking out providers that specialise in this this area," he explains. "This may prevent a major headache down the line. And, secondly, the fees for purchasing and administering property within a Sipp can mean that the costs are pretty hefty. It’s wise to go through the charges [for this] with a fine-toothed comb before investing.”
Read more on how to hold commercial property in your Sipp in the Investors Chronicle of 6 December 2019
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