It’s now 30 years since Nigel Lawson fired the starting gun on the self-invested personal pension (Sipp) revolution. The then Chancellor’s 1989 Budget included a proposal to “make it easier for people in pension schemes to manage their own investments”, with the details following several months later and the first Sipp launching in March 1990.
The market has evolved considerably since then, shaped by a stream of developments including 2015’s pension freedoms. Those reforms triggered a fresh surge in demand for Sipps from investors taking advantage of increased pension flexibility to enter drawdown plans, pushing Sipps well and truly into the mainstream.
However, this has in itself presented new challenges. From April 2020, new Financial Conduct Authority (FCA) rules mean non-advised investors entering new drawdown arrangements will be offered investment ‘pathways’ based on different investment objectives. The idea is it will reduce the risk of novice investors running out of cash.
The financial watchdog is also monitoring the value for money investors get from platforms, with a proposed ban on exit fees currently under consultation.
With both Sipps and the underlying platform market evolving, now is a good time to look at the state of play for investors using so-called ‘direct-to-consumer’ (D2C) platforms to invest and manage their pensions.
We asked Edinburgh-based financial services consultancy The Lang Cat to produce comparison tables showing administration costs at different levels of investment.
The tables give Sipp charging data in price and percentage terms for 10 of the biggest D2C platforms, with a ‘heatmap’ visual helping you to identify the lowest and highest charging platforms for different-sized pensions. The figures in green are the least expensive, with the shade reddening as the price steepens. The colours are based on comparison with charges of the other platforms in the table, not with the wider market or any other benchmark.
First, we’ll take a look at the basic Sipp platform charges; then we’ll see how they pan out when drawdown costs are factored in. These latter tables include the initial and ongoing fees charged for drawdown, where applied. In some cases there will also be additional charges for certain drawdown functions such as set-up and transferring out, to which we’ll return later on. However, the tables don’t include the fees levied on fund switches, as they are a less-significant feature in drawdown investing than in pre-retirement investing.
SIPP PLATFORM CHARGES
The charges under scrutiny are the main administration charges attached to Sipps. These figures were put together in January 2020, so they are a snapshot of the market as it was then and therefore subject to pricing and market changes.
It’s also worth taking note of some market developments over the past year. The recent acquisition of Alliance Trust Savings (ATS) by interactive investor, How to Retire in Style’s parent company, brings together the two biggest fixed-price investment platforms (so ATS no longer appears in our tables). These are the providers that charge flat fees regardless of the size of investment or the level of growth; most platforms still take a percentage of the amount invested (known as ad valorem charging).
While fixed pricing can make platforms more expensive for investors with modest pots, they become increasingly cost-effective from around the £100,000 mark (as we will see).
There have also been several pricing changes. interactive investor is again prominent here, replacing its monthly charging structure with three subscription plans based on monthly fees, still on a fixed-fee basis. The three options vary in terms of monthly charge and trading fees, but Sipp investors won’t typically be active traders. The additional monthly Sipp fee of £10 remains unchanged, but overall Sipp admin costs are reduced slightly for most investors.
Charles Stanley Direct has tweaked its fees too, raising its lowest annual charge (for pots of up to £250,000) from 0.25 to 0.35%. The move takes it from the low end to mid-table for modest pots, and keeps it among the more expensive for larger sums.
The wide margin between the cheapest and most expensive platforms for Sipp investors is illustrated by the contrasting shades in our tables. With a Sipp of around £50,000 you could be paying admin charges of as little as £90 a year or as much as £360. At the other end of the scale, if you’ve got £1 million or more invested, The Share Centre and Halifax Share Dealing/iWeb (the latter is run by the former) will charge admin fees of just £180. That’s in stark contrast to the £3,000 you’ll pay Hargreaves Lansdown for running your Sipp.
Source: The Lang Cat, February 2020
Most platforms set their pricing for purposes of positioning – Halifax/iWeb and Bestinvest are more focused on smaller Sipp investors than, say, Willis Owen or interactive investor (due to its flat fee it becomes better value the more money you have invested). Hargreaves stands out as being in the red zone across the board for Sipp administration, but we’ll see shortly that it becomes more cost-effective when drawdown factors are accounted for.
The drawdown functionality you use may have a big impact on the platform costs you actually incur, so it’s important to take those into consideration as well as the Sipp admin charges.
Our second tables show the effect of adding drawdown costs to the basic platform charges that Sipp investors will pay. Drawdown charges can include those for withdrawals, transfers out/exits, ongoing fund management and set-up, among others, but platforms may take varying approaches to additional fees.
For instance, AJ Bell Youinvest charges £25 for one-off events such as payments of income, tax-free lump sums, uncrystallised funds pension lump sums (UFPLS) and small lump sums. These extra costs take it from being at the cheap end in terms of admin charges to firmly middle-of-the-road, more than doubling the admin-only charges paid by AJ Bell Youinvest customers with the smallest pots (£125 vs £275).
SIPPS AND DRAWDOWN
Drawdown costs have a similar effect on the overall charges you would pay with Bestinvest and Charles Stanley Direct, taking both from the middle of the cost range to the higher end.
While the latter doesn’t levy a set-up fee for Sipps, it is among the providers that adds a fee (£150) for every benefit crystallisation event. This is a test carried out when cash or income are taken out in order to check if the lifetime allowance has been exceeded and, if so, ensure the appropriate tax is charged.
Other additional fees cover activities such as payroll (regular income payments), irregular income payments and capped drawdown reviews. Bestinvest has a similar range of fees, such as for ad hoc income payments and initial calculation.
Interactive Investor and Halifax Share Dealing/iWeb charge flat drawdown fees that cover various costs, at £120 and £180 a year respectively. However, there are still certain additional charges that may apply, such as for one-off payments (in the form of UFPLS) and capped drawdown reviews.
Elsewhere, Willis Owen has scrapped its £132 drawdown charge, making it considerably more competitive on price for drawdown users across most pot sizes. The change also puts it alongside Fidelity and Hargreaves Lansdown in the small group of providers that don’t charge additional fees for drawdown. At £50,000, the absence of drawdown charges makes Hargreaves one of the cheapest options, while Fidelity is competitive across the board.
While the different approaches to charging can make for difficult comparison on a like-for-like basis, the range of fees in the market makes the exercise worth the effort. If you look at the £50,000 column in the admin plus drawdown charges table (left), you’ll spot that the most expensive platforms impose fees more than double those of the cheapest. The contrast is even more stark at the other end of the table. A Sipp pot of £1 million or more with Hargreaves Lansdown will attract £3,000 a year in charges, whereas charges for the same fund at interactive investor and Halifax Share Dealing/iWeb come in at just £360 a year, illustrating the attraction of flat fees for the biggest pots.
The impact of charges on long-term returns becomes even more important if you’re relying on your Sipp for income throughout your retirement. If high charges are accelerating the effect of investment losses in a downturn, they may threaten the level of income you can take and even the sustainability of your fund.
Price is clearly a big influence on platform selection, whatever the tax wrapper. Nonetheless, there are other factors to consider.
When deciding which platform and pricing structure is the most suitable, it’s important to have a sense of your objectives and the level of service you need. The latter will include thinking about the extras that you consider worth paying. For example, the all-in fee structure at the likes of Hargreaves Lansdown might be better value for investors likely to use the full range of drawdown capabilities.
Similarly, if you’re likely to make changes to your portfolio over time, you would benefit from checking platforms’ trading fee structures to find those with low fees reflecting the kind of investments you want to hold. Hargreaves Lansdown makes no charge for trading funds, but charges the standard share-dealing fee for trading investment trusts, while interactive investor’s dealing fees do not differentiate between investment types.
Exit fees are still in play too, and these aren’t covered in our tables. While several platforms, including interactive investor, Willis Owen and Fidelity, have pre-empted an expected FCA ban on exit fees by scrapping charges for transferring out, most providers continue to levy them.
And the damage can be considerable.
Source: The Lang Cat, February 2020
BEYOND COSTS AND CHARGES
Your choice may also be shaped by the range of investments offered, says David Reid, chartered financial planner at Edinburgh-based Sutherland Independent. “More basic Sipps can offer most collective investments available in the UK. These let you decide which funds your pension is invested in, so if you have an idea of where you want to invest, make sure they offer you those funds. Also watch out for a maximum number of funds you can invest in at any one time, or for any minimum investment amount per fund.”
The range of admin options will for some investors be an influence too, he adds, pointing to the increase in flexibility under the pension freedoms.
Reid says: “Do they give you all the available options of taking retirement benefits that were introduced in 2015, including flexible access drawdown? Do they allow variable payment frequencies, including ad hoc withdrawals and UFPLS? How long will it take them to get the funds into your bank account?”
That’s just an idea of some of the questions to ask when weighing up which platform is the best home for your Sipp. Taking a lower-cost route will for many investors remain a decisive consideration.
Jeff Salway is a freelance journalist who writes for publications including Which? Money and The New Statesman
interactive investor sipp fees are £239.88 per year
interactive investor changed there charges and now charge £9.99 service fee + £10 to manage the SIPP per month, making them one of the most expensive SIPP providers
ii becomes less expensive the more that you invest with them.
For my funds HL would be eight times more expensive.