Could a SIPP cost less than a stakeholder?
Although a SIPP is traditionally seen as a more bespoke, expensive way of housing your retirement fund, there are a number of ways SIPP providers can make their offerings cheaper.
Francis Klonowski, partner of IFA firm Klonowski & Co, says: "For a larger fund, the cost can work out lower as you pay a set fee for the administration, rather than a percentage as you do with stakeholder pensions."
In addition, he says there's a breed of "quasi-SIPPs" with slightly less investment choice that have very low charges and could be suitable for investors with a smaller pension.
His favourite, the Alliance Trust Savings Select SIPP, charges an annual management fee of just £75 plus VAT and also reinvests any commission paid by the funds held within it.
Other low-cost SIPPs include Standard Life's Active Money, James Hay's e-SIPP, Killick & Co's SIPP and SIPPCentre, which won the best low-cost SIPP award in the Moneywise Pension Awards 2010.
Stakeholder pensions, on the other hand, can charge up to 1.5% a year for the first 10 years and 1% thereafter, which could end up being more costly, depending on the fund size.
But Stuart Jeffries, chartered financial planner at Cerberus Financial Planning, says investors should still question whether they really need a SIPP.
"Are you going to use the flexibility and do you want to invest in direct equities or commercial property? If you've got a relatively small pension perhaps you should consider leaving it where it is," he adds.
Jeffries's concern is that investors may be drawn into using a SIPP by its status rather than the strength of the product. He warns that costs can mount if the full facilities, such as extra investment options, are used regularly.
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.
A form of money purchase defined contribution pension launched by the then Labour government in April 2001 with low charges and no-frills minimum standards. Designed to appeal to people on low and middle incomes who wanted to save for retirement but for whom existing pension arrangements were either too expensive or unsuitable, the stakeholder didn’t really take off and looks to be superceded by the National Employee Savings Trust (NEST).
A financial adviser who is not tied to any financial services company (such as a bank or insurance company) and is authorised by the Financial Services Authority (FSA). They can advise on financial products to suit your circumstances. All IFAs have to give consumers the choice of paying by fees or commission and have to explain which would best suit the customer in that particular instance. Also, if commission is paid either by the client or the financial service provider recommended by the IFA, the IFA must disclose what that commission is.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
Like a self-select ISA but for pensions, self-invested personal pension is a registered pension plan that gives you a flexible and tax-efficient method of preparing for your retirement. It gives you all sorts of options on how you put money in, how you invest it and how it’s paid out and offers a greater number of investment opportunities than if the fund was managed by a pension company. SIPPs are very flexible and allow investments such as quoted and unquoted shares, investment funds, cash deposits, commercial property and intangible property (i.e. copyrights, royalties, patents or carbon offsets). Not permitted are loans to members or people or companies connected to the SIPP holder, tangible moveable property (with the exception of tradable gold) and residential property.