- A few platforms have recently made tweaks to their Sipp fees
- If you are about to retire, make sure your provider will support you in drawdown
- Interest rate on cash, admin fees and investment choice are all factors to consider
Self-invested personal pensions (Sipps) are often the most expensive products offered by investment platforms. Investors typically contribute to them regularly for long periods of time, building sizable portfolios that can easily accrue significant yearly fees.
Picking a Sipp provider that won’t overcharge you is crucial in order to maximise your returns, but you should also consider the other factors that might make a platform more suitable than others for your circumstances, as well as regularly review your arrangements to make sure you are still with the best provider for your portfolio and investment style.
Latest changes
While the platform landscape has remained broadly unchanged since last year’s Sipp special issue, providers have made a few tweaks to their pricing and features. Last month, Hargreaves Lansdown removed both its £1.50 charge to invest into shares, investment trusts and exchange traded funds (ETFs) via regular investing, and its charge to reinvest dividend income into shares, previously set at 1 per cent of the deal with a minimum of £1 and a maximum of £10. The change applies to all the platform’s accounts, but feels especially relevant for Sipps, where many investors make regular contributions to their pots every month. Interactive Investor also offers free regular investing.
Freetrade now charges a different price depending on whether you pay your account fee monthly or annually. If you pay annually, the costs of the Plus account, which includes both an individual savings account (Isa) and a Sipp, stays the same at £119.88 (the equivalent of £9.99 a month). But if you pay monthly, the cost goes up to £11.99 a month.
Finally, earlier this year, Fidelity’s dealing fee was reduced from £10 to £7.50, and the foreign exchange fee also decreased slightly. But the annual cap on its platform fee for shares, investment trusts and ETFs increased to £90 from £45 previously. This still looks like value for money in the Sipp space.
Low cost for you
As usual with platforms, the cheapest option for you will depend on how you invest your Sipp. What you invest in and how much you trade are key factors. Household names such as Hargreaves Lansdown, AJ Bell and Fidelity cap their account fee at a much lower level if you hold stocks, investment trusts and ETFs, while holding funds is more expensive. But trading funds is free or significantly cheaper than trading stocks.
With Sipps, you also need to pay attention to extra charges, which sometimes penalise smaller accounts. For example, Charles Stanley charges a £120 admin fee, which is waived if you have more than £30,000 across all accounts, while Bestinvest has a minimum £120 service fee for its Sipp. Conversely, AJ Bell has become quite competitive for big funds portfolios after it waived its platform fees on the value of funds over £500,000.
As the table shows, some platforms have extra drawdown charges, so if you are approaching retirement, it could be a good time to review whether your Sipp provider is the right one for you going forward. A few low-cost providers, such as Freetrade, do not offer drawdown at all. If you are still in capped drawdown, a type of income drawdown pension that was available to savers before 6 April 2015, you might incur extra charges, and again, not all providers offer it.
If you are in the drawdown stage, your strategy might also involve an allocation to cash, to help smooth out short-term volatility. If that is the case, it is worth checking how much interest your platform pays on the cash in your Sipp, if any. For example, for drawdown Sipps, Hargreaves Lansdown pays a variable rate that also depends on how big your portfolio is. At the time of writing, it ranged from 2.50 per cent for account balances below £10,000 to 3.25 per cent for account balances above £100,000. Bestinvest currently pays 3.35 per cent on all cash balances, while AJ Bell pays 2 per cent on cash balances below £10,000 and 2.75 per cent on any amount above that.
Transferring your Sipp to a different provider can take some time and might incur transfer-out fees, so the cost savings will need to be enough to make it worth the trouble. The quickest option is usually a cash transfer, which entails selling your investments and buying them back in the new Sipp. While the transfer takes place, your portfolio won’t be invested, which could be a blessing or a curse depending on market movements.
Whether you need to open a new Sipp or are considering a transfer, the most accurate way to compare platform charges is looking at both your past investment activity and future plans for the portfolio. You should estimate how many times you trade in a year, how your investments are split between stocks and funds, as well as your planned contributions and target returns, and calculate how much each platform will charge you.
Not just fees
Costs are not the only factor at play. The choice of investments available on the platform is also a key consideration, together with ease of use and customer service.
The first top-level choice to make is between a full-service Sipp and a low-cost one. Most people who invest in funds and shares will only need a low-cost Sipp, while full-service Sipps are required if you wish to invest in less standard assets such as commercial property, unquoted companies, derivatives and physical commodities.
Full-service Sipps are offered by specialist providers such as Barnett Waddingham, Curtis Banks and Killik & Co. They are significantly more expensive and you should only consider one if it really makes sense for your circumstances – for example, because you own your business premises and it is more tax efficient to hold the property within a pension.
Investment choice is also a factor in the low-cost space. For example, with Vanguard you can only invest in the provider’s own funds, while Freetrade focuses on stocks and does not offer open-ended funds at all. The biggest platforms all offer fund shortlists and ready-made portfolios, and while you should always do your own research, they can be a useful starting point for new investors.
Finally, do not forget about your other accounts, such as Isas. Having all your accounts in one place has a number of advantages, and some platforms will reward you for your loyalty. Interactive Investor’s flat fee, for example, is especially cost-effective if you handle multiple accounts, and if you have an existing plan you will also get a discount on your Sipp fee.
But on the other hand, for many investors, their Sipp will become their biggest account, so it is especially important to have it with a platform you are comfortable with. Holly Mackay, founder and chief executive of Boring Money, argues that pensions can be quite complex, especially at the point of retirement, and it can be worth spending more to get a more tailored service.
“If cost is your driver, I’d look at Interactive Investor and Halifax. If a decently priced pensions expert sounds better, I’d look at AJ Bell. And if you want a simple low-cost way to save into a pension, are not yet retired, and don’t care about investment choice, consider Vanguard,” she says. Mackay considers Hargreaves Lansdown “excellent too but pricey” – unless you only invest in shares, ETFs and investment trusts, in which case the £200 share custody cap is “fabulous value”, she adds.
