Vanguard launches 'cheapest ever' personal pension – here's how it stacks up

5 December 2019

The SIPP comes with an account fee of 0.15%, meaning you will be paying 15p for every £100 invested

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Fund manager Vanguard is set to launch what it claims is the lowest-cost self-invested personal pension on the market next year.

The Vanguard Personal Pension comes with an account fee of 0.15%, capped at £375 a year. That means you will be paying 15p for every £100 invested.

You can invest from £100 a month or a lump sum of at least £500.

Investors will have access to 76 of Vanguard’s funds and ETFs available on the Vanguard Personal Investor platform, including Vanguard's Target Retirement Funds and the popular LifeStrategy range.

The account fee cap applies across all personal pension, Isas and general account holdings on the Vanguard Personal Investor platform.

If you want to buy or sell ETFs through the optional Quote and Deal service, you will be charged a fixed fee of £7.50.

Sean Hagerty, head of Europe at Vanguard, says: The Vanguard Personal Pension is designed to reduce the cost and complexity of saving for retirement. An individual’s savings often represent a lifetime’s effort, yet many investors and retirees continue to be charged far too much on the proceeds of their own hard work.

“Fees can have a sizeable impact on investment returns, and consequently on the quality of life in retirement.

“We want to offer investors the clarity, peace of mind and value for money they deserve, through a service that is simple, effective, transparent and fairly priced.”

What is a SIPP?

A SIPP is just like any other pension except you get to manage and invest your pension where you like.

It gives you access to a wide range of investments, including funds, shares, ETFs and bonds.

They can also be used to consolidate your pensions. Nowadays, most of us work for more than one employer, so they are a good way of putting all your pensions in one place.

The government will also add 20% tax relief to your pension, so if you put in £8,000 you will get an extra £2,000.

Traditional personal pensions offer you the choice of investing in a hundreds of different funds, but they can come with relatively high charges.

While stakeholder pensions have lower charges, they have a more limited choice of funds.

Although SIPPs offer investors greater investment choice than a personal pension, they are typically more expensive to run.

Is it good value for money?

However, Vanguard is charging an annual management fee of 0.15% with no exit or transfers fees. On top of this there are also additional fund charges.

This compares to interactive investor (Moneywise's parent company) charge flat fees between £9.99 or £19.99 a month depending on how active you wish to be with buying and selling investments. 

Other providers such as Hargreaves Lansdown’s 0.45% which is capped at £200 a year. It has no fund dealing charges, but you will have to pay £11.95 for buying and selling shares.

Myron Jobson, personal finance campaigner at interactive investor comments: "More competition in the investment platform space is good news for investors, and in the case of the forthcoming Vanguard launch, it may be of interest to those who don’t mind their choice being restricted to Vanguard funds – although it’s a big sacrifice to make.

"The ability to cherry-pick from a range of literally thousands of investments is hugely attractive to engaged investors, and our customers are not restricted to funds and ETFs either – many actively engage share dealing and trading investment trusts.

"It is worth noting that the interactive investor SIPP would still be cheaper to hold Vanguard for those with pot sizes of £159,920 or more. This is on the basis of a 0.15% AUM charge capped at £375 per year, compared to our own monthly core charge of £9.99 per month in our Investor price plan, plus £10 per month in addition for the SIPP."

While Moneywise recommends several Vanguard funds as part of its First 50 Funds selection, with the interactive investor, Hargreaves Lansdown or other major platform SIPPs you can invest in thousands of funds and other instruments, far higher than the 76 available with Vanguard.

Jeremy Fawcett, head of platform research group Platforum, says: “Pension investing is a long-term activity and outcomes are significantly improved when fees are pegged back.

“The Vanguard SIPP is one of the lowest cost options in the market, especially for those at the beginning of their investing journey.”

Platforum found that if you invested £40,000 through the Vanguard SIPP would cost £172 a year in total charges. 

Investing the same amount in the same fund through a SIPP on a different platform would cost an average of £283, or as much as £396 via the most expensive platform.

Comments

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""It is worth noting that the interactive investor SIPP would still be cheaper to hold Vanguard for those with pot sizes of £159,920 or more. "

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