By
Marc Shoffman
|
The rise of DIY online investing has transformed the way people are able to save for retirement, but navigating your way through the maze of Sipp charges is a tricky task.
Traditionally workplace or personal
pensions allow savers to make contributions that are then put into a
limited range of investments offered by fund managers. In
contrast, a Sipp – as self invested personal pensions are known – can
dramatically extend your options and offer the full range of funds, investment trusts, shares, bonds and more.
DIY investing platforms have seized
the initiative to compete on costs and features to help people invest
for their retirement, but a watchdog shake-up has led to changes in the way they charge.
We crunch the numbers to reveal some of the best and cheapest DIY investing platforms for managing your Sipp.
Tools: Sipps allow you to manage your own pension investments but come with different costs
Why investors like Sipps
At the simplest level a Sipp is a wrapper that goes round your pension investments and allows you to benefit from the valuable tax breaks on offer, chiefly the opportunity to gain tax relief on money paid in and ultimately take a tax-free lump sum of up to 25 per cent of the pot after age 55.
Any investment judged to qualify by HMRC can be put into one and a full Sipp offers the opportunity to include in some relatively exotic things, such as directly buying commercial property, putting your own business premises in, or even invest in intellectual property.
Unless you are a wealthy business owner, however, a full Sipp is likely to be far beyond what you need.
Instead, most pension investors are well served by Sipps offered by DIY investing platforms, which deliver the opportunity to buy and sell funds, investment trusts, shares, bonds and more.
The idea is that by taking control of your own pot you can help maximise your returns and cut down costs. Previously, high Sipp charges meant that they were not really worthwhile for those without bnig pensions, but charges have tumbled in recent years, and in some cases they cost the same as running an investing Isa.
How to choose the right place to invest your pension
As with using a platform for an investment account or Isa, not all providers are the same and you need to weigh up what you will be investing in to work out which is right for you.
Some will be cheaper if you just invest in funds and some better for share dealing and investment trusts. Some will offer a cheap but basic service, while pricier rivals have clever research tools, others will have a broader range of products to choose from.
Choosing a Sipp should not just be about price, however. It should also be about service and how a platform suits your investing needs. Some will just want the lowest possible charges and a basic service, others will get much more out of a platform with good research, tools and even an app.
If you can’t find everything you need to test a Sipp out online, call the platform and ask about getting a full demonstration.
How you pay for a Sipp
Admin fees
Changes by the financial watchdog, the FCA, mean that DIY investing platforms must stop earning money through commission from fund managers and instead charge an explicit amount for their service.
Platforms have been releasing their charges and changing how they do things in the build up to the cut-off date at the start of April. Most have opted for either a percentage or flat-fee based administration charge.
Sipps can carry extra charges compared to a standard investing account or Isa though.
Some platforms will charge a fee for transferring money
into or out of a Sipp, while others will charge a set up or annual fee for the
Sipp.
You may not necessarily
have to take a hit on a charge for transferring a Sipp, as
many platforms have launched cashback offers for you to join. This can
help fund moving your money to a better home
Dealing charges
On top of admin fees you need to consider dealing charges
Some platforms will offer free trades for funds but not shares or investment trusts, while others will make you pay for both. Platforms have tended to fall into two camps, those charging a percentage fee with free or cheaper fund dealing and those charging a flat-fee with fund dealing charges.
For example, Hargreaves Lansdown charges 0.45 per cent on investments held but offers free fund dealing. Alliance Trust charges a £90 per year flat-fee but charges £12.50 to buy or sell funds.
What you intend to buy and how often, as well as the size of your pot will decide what is right for you.
Fund manager fees and extra charges
The final thing to consider is annual management fees charged by fund managers, with some providers negotiating discounts for their investors. Ultimately, you can’t avoid these if you want a fund or investment trust but you may be able to trim them.
You also need to check the platform’s full list of other fees. What are the charges for transferring elsewhere, getting paper statements, or converting your fund into pension income via an annuity?
So who has the cheapest Sipp?
This is a real how long is a piece of string question. Ultimately, there is no cheapest platform for a Sipp, because it depends on how much you have invested, what you invest in and how often you buy or sell. You need to be the one to work all that out, but once you know what kind of investor you are, you can then find the Sipp that’s right for you.
We have built on number crunching by platform researchers the lang cat to deliver heatmaps that highlight some different scenarios. [Initial charges and annual management charges on funds are not included.]
Fund-only Sipps
The first table heatmap, compiled by the lang cat, analyses the cost of investing purely in funds.
It shows how much you would have to pay each year to invest at different portfolio sizes and includes the annual fee for a Sipp and assumes 10 fund deals.
Sipps: The lang cat has analysed how much a funds only Sipp would cost
Investing in funds and shares or investment trusts
The picture changes if you wanted to invest your Sipp in shares or investment trusts as well, as the free fund dealing platforms charge for these.
The heatmap table below, compiled by This is Money, takes the costs from the lang cat research but adds 10 share deals spread evenly over 12 months.
It shows how much you would have to pay
each year to invest at different portfolio sizes and includes the annual
fee for a Sipp, 10 fund deals and ten share deals.
We have added the share deals on, rather than replacing the fund deals with them, as many investors putting shares in their Sipp like to build a core portfolio of funds and add some shares to them – adding them on also highlights the cost difference better.
Costs: This heatmap shows some platforms are better for bigger pots while others are better with a small amount invested
How does this all work out for different investors?
New investor
The cheapest upfront way to start small-scale pension investing is with funds. You can outsource your stock selection to a fund manager and your start-up costs are cheaper, as many DIY investing platforms don’t charge for fund dealing.
A small pot of £5,000 looks cheapest with those who charge percentage based fees such as Hargreaves Lansdown, Fidelity, Barclays and Bestinvest.for a purely fund-based Sipp.
None of the above will charge for fund dealing so would be good if you are starting out and plan to be an active investor who buys funds relatively regularly. Youinvest undercuts them on admin fees but has a fee of £4.95 to trade funds, so may be more beneficial for less active buy and hold beginners.
Bestinvest stands out in particular as actually charges less for a Sipp, at 0.3 per cent compared to its standard 0.35 per cent, while others use the same as what an Isa or fund dealing account would cost.
You should not choose on price alone though as all will have different levels of service that help you build you portfolio such as research, interactive tools like calculators and discounted fund lists.
Hargreaves, Fidelity and Bestinvest are well known for their research, which would be valuable for a new investor trying to get to grips with their portfolio.
What if you want to buy shares or investment trusts?
The real differences emerge once you want to buy shares.
Bestinvest has a flat dealing fee of £7.50 but it comes out cheapest as rivals such as both Hargreaves and Barclays charge extra if you want to hold shares in a Sipp, which pushes the costs up. n
Barclays charges £180 for a Sipp with shares while Hargreaves users get an extra 0.45 per cent fee, capped at £200.
This turns Barclays and Hargreaves from one of the cheapest for just funds, to one of the most expensive if you have a portfolio of funds and shares.
Also, Fidelity’s costs are pushed up by £9 trading fees for shares, and YouInvest charges £9.95.
Small Sipp investor moving a lump sum
A Sipp investor with a sum of £10,000 also looks better off with Bestinvest, Hargreaves, Fidelity, Barclay or Youninvest if just using funds. It is also worth checking offers these platforms have for transferring your assets as some will give you cashback or extra trades.
If you are regularly trading your funds then it would be best to pick one of the above that offers free fund trades.
Again differences emerge when using shares and Bestinvest comes out on top, closely followed by Fidelity.
There is also a low administration charge for both funds and shares of 0.20 per cent.
Fidelity’s Sipp also looks competitive as it has no setup charges or annual fees other than the fund administration fee of 0.35 per cent on assets up to £250,000 and 0.20 per cent over £250,000, plus fund manager fees. But you will need to pay £9 per trade, which is relatively steep.
Medium-sized pension pot investor
Big pension pot investor
Those with bigger pots of £200,000 and above tend to benefit more from a flat fee over a percentage charge.
This
is expensive for pots below £50,000 but once you get above £100,000
the amount you pay with a flat fee actually works out among the
cheapest.
This is the same
for iWeb, Halifax Stockbrokers, The Share Centre and Interactive
Investor which all charge flat fees but varying amounts for fund or
share trades, which creates big cost differences.
iWeb only charges £5 for fund and share trades and has a quarterly administration charge of £22.50 for a portfolio worth up to £50,000. This rises to £45 a quarter above £500,000.These flat fees keep it competitive across the different amounts, and particularly for bigger pots, but you also have to consider the functionality and fund choice you are getting.
YouInvest, which is a bigger platform than iWeb with more tools and guidance, also looks good for those with bigger pots, and investors benefit from a 0.20 per cent fund charge that is capped at £200.
It is not only the pension pot building phase you have to consider.
There are also varying charges for when you come to retirement and want to take your pension in the form of drawdown or an annuity.
If you get to retirement and only have a small amount in your pot, currently defined as up to £18,000, there may be a charge for taking it all out as cash, known as ‘tiivial commutation.’
HOW WE WORKED OUT THE COSTS OF A SIPP PLATFORM
Some platforms are better than others when it comes to disclosing their fees clearly.
It should be as easy as going onto one of these websites and seeing a page with a list, as some provide.
But others require you to check the SIpp fee in one place and then search further for the dealing fees and wider platform charges.
Some have not moved to their new rebate-free pricing yet, so we have just used what their new fees will be.
Others are yet to launch their new Sipp proposition, such as Cavendish.
We detail below how the costs are worked out for each platform.
We have assumed ten fund and ten share trades over a year, which means we have ignored some of the tiered trading fee structures that get cheaper if you do a certain amount each month.
Here is a quick breakdown of charges.
Youinvest
If you have assets worth up to £10,000 then you will pay £5 per quarter, this increased to £15 for between £10,000 and £20,000 and £25 for above £20,000.
There is just one annual admin charge for funds and shares at 0.20 per cent but you will pay varying amounts depending on whether you want to trade funds or shares.
Fund dealing has a flat fee of £4.95 while if you want to trade in shares this will cost you £9.95 a month for zero to nine deals, and £4.95 for 10 or more.
Bestinvest
Bestinvest has an annual charge for funds and shares of 0.30 per cent up to £250,000 and 0.20 per cent for £250,001 to £1m.
Fund dealing is free while share deals will cost you £7.50.
Alliance Trust
Alliance Trust charge a flat annual £186 fee for a Sipp. There is no admin charge for funds or shares but dealing would cost you £12.50.
Charles Stanley Direct
Investors using Charles Stanley direct will have to pay an annual Sipp fee of £120. The annual charge for funds and shares is 0.25 per cent on the first £500,000, and 0.15 per cent on balances of funds in excess of £500,000.
Fund dealing is free while share trades will cost you £10.
Hargreaves Lansdown
Hargreaves has an annual administration charge for funds is 0.45 per cent for up to £250,000 then 0.25 per cent for the next £250,000 to £1m then 0.10 per cent. There is a separate 0.45 per cent charge for holding shares, applied to the whole account, but capped at £200.
Fund dealing would be free but you will need to pay £11.95 a month for 0 to 9 share deals, £8.95 for 10-19 and £5.95 for 20 or more.
The Share Centre
The Share centre Sipp will cost you £14.40 a month.
A standard dealing account would cost you 1p er cent with a minimum of £7.50 while more frequent traders could get an account that costs £7.50 a trade plus a £24.00 quarterly fee
Transferring in is free unless you are in drawdown which will cost £90.
We have applied the frequent trader account to amounts of £20,000 and above.
Halifax Share Dealing
Halifax has a quarterly charge of £22.50 for Sipp portfolios worth up to £50,000 and £45 above that. Dealing fees are £12.50 for funds and shares.
Barclays Stockbrokers
Barclays has a fund administration fee
of 0.35 per cent a year subject to a minimum of £35 and a maximum of
£1,750 per account per year.
Dealing charges will cost you £11.95 for up to nine deals a month, £8.95 for 10 to 19 and £5.95 for 20 or above, but we have just used an £11.95 charge.
There is no extra charge for a funds-only Sipp, but if you add shares or investment trusts there is an extra £186 charge.
Fidelity
Fidelity doesn’t charge for a a Sipp but has an annual fund administration fee of 0.35 per cent on assets up to £250,000 and 0.20 per cent over £250,000, which is applied to the whole account.
Online share dealing will cost you £9 per trade.
iWeb
An IWeb Sipp has a quarterly administration charge of £22.50 for a portfolio worth up to £50,000. This rises to £45 a quarter above £500,000.
Fund and share trades are £5.
TD Direct
A TD Sipp costs 0.25 per cent every six months subject to a minimum of £48 and a maximum of £120.
There is a 0.35 per cent fund administration fee. Dealing costs are £12.50 for one-off trades, which is the figure we have used.
It would cost £8.95 if you do 10 or more trades over three consecutive months or £5.95 for an average of 20 or more for three consecutive months.
Interactive Investor
Interactive Investor has an annual fee of £144 for a Sipp.
It will cost a flat fee of £10 to trade shares, funds and investment trusts, or £5 if you do more than 10 a month.
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