How to pick a Sipp platform
If you want to open a Sipp you’ll probably want to do it through a fund supermarket, or platform, that gives you a broad range of investment options at a decent price. You may also want some guidance in choosing appropriate investments if you’re an inexperienced investor.
This guide explains the difference between providers, the questions you’ll want to think about when choosing a platform, and a roundup of some of the cheapest providers.
Charges are one of the biggest drags on investment performance over the long term, if not the most significant, so it’s important to shop around for the best deal.
Fund supermarkets will typically charge an annual fee to manage your pension. This could either be a fixed amount, or a percentage of your pension pot. If you have a larger pension you’ll pay less on a flat-fee structure.
The table, compiled by Steve Nelson at platform experts the lang cat, shows typical charges for a range of the biggest providers, assuming you buy and sell funds five times a year. Many providers charge each time you switch a fund, but some don’t.
We’ve not included fees charged by the funds you invest in, which vary but will be advertised on your chosen platform. Tracker funds, which are managed by computer programs and mimic the performance of an index such as the FTSE 100, are cheaper as they don’t require expensive fund managers. Actively managed funds (run by investment professionals) cost more but could outperform the market or offer exposure to more ‘exotic’ investments.
Bear in mind there could be additional platform charges for other services, like when you come to draw from your pension in retirement. Also watch out for exit fees, particularly if you’re holding equities, as these can be as much as £25 per share. Also note that iWeb has a one-off £200 joining fee, which just isn’t worth it for smaller portfolios.
The right platform will not just be cost effective for your portfolio size. It’ll also offer suitable investment options, fund research and other tools to meet your needs.
All featured platforms offer funds, and if you’d like to try your hand at picking stocks those providers have been highlighted too. You may also wish to look for a platform that offers cheaper passive investments such as ETFs, or model portfolios that let you buy a basket of investments based on the level of risk you are willing to take.
“A lot of it depends on the nature of your investments and if you need help choosing funds or a proposition,” says Nelson. “If you want someone to hold your hand, Nutmeg or Retiready from Aegon would be good as they help you assess your risk profile.”
Each platform offers additional tools to help you review and manage your portfolio. For example, most, including Hargreaves Lansdown, offer portfolio analysis tools that show your asset allocation and performance against inflation or another benchmark.
The majority of fund supermarkets are mobile-optimised, so you can check your funds on the go. If you want to manage your portfolio through an app, it can be done but few currently stand out, according to the lang cat.
If you also have an Isa, it makes sense to find a provider that features in our Isa guide to avoid the pain of getting used to two platforms.
If you’re looking to get into the nitty-gritty, the wealth of information offered by a powerhouse such as Trustnet could be useful but it’s likely to be overbearing for people starting out for the first time.
Once you’ve found a platform that meets your needs, check to see if there’s a dummy portfolio option. These let you get a feel for the platform before depositing real money.
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.
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.
Also known as index funds, tracker funds replicate the performance of a stockmarket index (such as the FTSE All Share Index) so they go up when the index goes up and down when it goes down. They can never return more than the index they track, but nor will they lose more than the index. Also, with no fund manager or expansive research and analysis to pay, tracker funds benefit from having lower charges than actively managed funds, with no initial charge and an annual charge of 0.5%.
All investment returns are measured against a benchmark to represent “the market” and an investment that performs better than the benchmark is said to have outperformed the market. An active managed fund will seek to outperform a relevant index through superior selection of investments (unlike a tracker fund which can never outperform the market). Outperform is also an investment analyst’s recommendation, meaning that a specific share is expected to perform better than its peers in the market.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
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).
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
A standard by which something is measured, usually the performance of investment funds against a specified index, such as the FTSE All-Share. Active fund managers look to outperform their benchmark index. Cautious fund managers aim to hold roughly the same proportion of each constituent as the benchmark, while a manager who deviates away from investing in the benchmark index’s constituents has a better chance of outperforming (or underperforming) the index.