How much will your retirement cost?
We've all heard quite a bit about what is possible under the new pension freedoms, and even what the potential tax implications are for each option.
But how much will it actually cost you to take advantage of the new flexibilities?
Platform consultancy The Lang Cat has gathered pricing data from all major direct-to-consumer investment platforms - assuming they offer the new options at all, and that their pricing is available. The results suggest actually assessing what it will cost you is no simple matter.
First of all, Sipp charging is difficult to assess. It's made all the more difficult by the various event-driven charges - in other words, one-off prices you have to pay for taking certain actions.
These can include set-up fees, in-specie transfer, switching assets, charges associated with holding commercial property, and others.
When it comes to flexibly accessing your Sipp in retirement, you face a whole other layer of event-driven charges: flexi-access set-up charges, annual charges, and one-off payment charges to mention a few, each of which can vary depending on specific circumstances.
“There's an element of irony in the most complex charging structures being aimed at direct investors,” says Mark Polson, director of The Lang Cat.
“We were frankly stunned at how hard it was to track down some of the pricing details. Some were easy: simple to find, well-structured and clearly written.
“Others were impossible, with a number of providers appearing to still not have flexi-access pricing published more than two weeks after the new regime went live. This is just not good enough.”
|Direct platform||FAD setup||Annual FAD||FAD one-off payment||UFPLS payment||Annuity purchase||Stripping out within one year|
|AJ Bell You invest||£0||£100 if regular income, £50 if not||£75||£75||£150||£295|
|Alliance Trust Savings i.nvest||£0||£75||£0||£40||£150||Not stated|
|Bestinvest||£0||£0 for > £100k, £100 for < £100k||£0||Not stated||£75 internal, £100 external||£290|
|Charles Stanley Direct||£150||£0||£150||Not stated||Not stated||£200|
|Chelsea Financial Services||£100||£120||Not stated||Not stated||Not stated||£300|
|Fidelity Personal Investing||£0||£0||£0||£0||£0||Not stated|
|Halifax Share Dealing||£0||£180 (no VAT)||£90 + £25 per investment||£90 (no VAT)||Not stated||£300 (no VAT)|
|Hargreaves Lansdown||£0||£0||£0||£0||£0 internal, £150 external||£295|
|Interactive Investor||£0||£170||Not stated||Not stated||Not stated||Not stated|
|iWeb||£0||£180 (no VAT)||£90 + £25 per investment||£90 (no VAT)||Not stated||£300 (no VAT)|
|James Hay Modular iPlan||£100 (no VAT)||£150 (no VAT)||£0||£100 (no VAT)||£0||Not stated|
|Telegraph Investor||£0||£170||Not stated||Not stated||Not stated||Not stated|
|TD Direct||£0||£75||£0||Not stated||£75||£250|
|Trustnet Direct Investing||£204 (no VAT)||£180 (no VAT)||Not stated||Not stated||Not stated||£302|
The table above outlines the overall charges at each of the investment platforms that allow customers to take advantage of the new flexibilities - and which made their prices known.
For reference, FAD stands for 'flexi-access drawdown' - the industry name for accessing your pension pot as and when you want.
UFPLS stands for 'uncrystallised funds pension lump sum' - a withdrawal whereby 25% of it is untaxed, instead of an entirely untaxed lump sum equal to 25% of the pot.
The 'traffic light map' - wherein red means more expensive and green means less expensive - uses several assumptions for simplicity's sake: it assumes a pot of about £50,000 from which the investor wants to take a tax-free lump sum of £12,500 and a small, variable income.
|Direct platform||Core charge||Drawdown charges||Total & change|
|AJ Bell You invest||£200||£120||0.64%|
|Alliance Trust Savings i.nvest||£186||£90||0.55%|
|Charles Stanley Direct||£245||£180||0.85%|
|Chelsea Financial Services||£300||£264||1.13%|
|Fidelity Personal Investing||£175||£0||0.35%|
|Halifax Share Dealing||£90||£180||0.54%|
|James Hay Modular iPlan||£285||£250||1.07%|
|Trustnet Direct Investing||£221||£384||1.21%|
This article was written for our sister website Money Observer
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.
Tax-free lump sum
An inelegant phrase that is nonetheless accurate in what it describes: a one-off payment to a beneficiary that is free of any form of taxation. Usually received when using a pension fund to purchase an annuity, as 25% of the overall fund can be taken as a tax-free lump sum.
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.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.