SIPPs vs stakeholder pensions

Investors could pay less to hold their retirement fund in a self invested personal pension (SIPP) than in a stakeholder pension – but should be wary before choosing that route, warn experts.

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.

Your Comments

I wondered if you could help me. My wife and I are in the process of buying a cottage in wensleydale. I am retired and my wife is about to retire. We have separate pensions but would like to earn a little from renting the property out as a holiday cottage.
Can we put the cottage into a SIPP? What advantages and disadvantages might this holf for us please?
Kind regards
David/Maragaret Chapman