Cost is an important issue for investors managing their investments through a Sipp, a market that has grown dramatically since drawdown has become the retirement income vehicle of choice.
The subject of costs and charges also featured prominently when the City regulator published the outcome of its year-long study of the platform market in 2018. The Financial Conduct Authority (FCA) found that charges and range of investments were the most important factors for DIY investors, while lower charges were identified as the main motivation for switching platforms.
So how can investors ensure they are getting the best deal for their retirement pot? As it stands, too few are shopping around. The FCA’s research found that large numbers of non-advised investors simply settled for the first platform they looked at.
There are compelling reasons to compare the different options available, particularly when it comes to drawdown and the charges you pay. After all, if your Sipp will be funding 20 or even 30 years of retirement, high charges will take a big chunk out of your savings and, in some cases, increase the risk of running out of money before you die.
To help you through the maze, we asked The Lang Cat, a financial services consultancy, to produce comparison tables that make it easier to assess the costs at different levels of investment.
The tables below show Sipp charging data for 11 leading direct-to-consumer (D2C) platforms, with a ‘heat map’ that makes it easier to identify the lowest- and highest-charging platforms. The figures in green are the least expensive, with the shade becoming redder as the pounds add up. The colours are based on comparison with the other platforms in the table, not with the wider market.
Most investors will have at least £50,000 in their pot, so we’ve used that as our starting point.
We look first at the basic Sipp platform charges and then at the charges when drawdown costs are factored in (with the latter shown in separate tables both in percentage terms and as pounds).
These tables include the initial and ongoing fees charged for drawdown, where applied, in a separate column. In some cases, there will also be additional charges for certain drawdown functions such as set-up and transferring out, which we’ll return to later. What they don’t include are the fees applied on fund switches, as they are a less significant feature in drawdown investing.
SIPP PLATFORM CHARGES
We will start by looking at the main administration charges on Sipps. Before we go into the detail, there is an important caveat to highlight. These figures were put together in December 2018, so they are a snapshot of the market as it was then – things can change quickly.
The last year has been relatively quiet on that front, in the direct platforms market at least. A notable exception was the acquisition of TD Direct Investing by Moneywise’s parent company, interactive investor, creating the UK’s second biggest direct platform (after Hargreaves Lansdown). interactive investor is also in the process of buying Alliance Trust Savings, though the sale is still subject to regulatory approval.
Turning to the figures, one feature that jumps out is the margin of difference between the cheapest and most expensive Sipp charges. At the £50,000 level, we go from 0.18 % (£90 a year) with Halifax Share Dealing (and iWeb, which it runs), up to 0.66% (£332) with Willis Owen.
Flat fee structures put Alliance Trust Savings and interactive investor in the ‘relatively affluent’ category too. Flat fees mean you pay a fixed amount, regardless of the size of the investment or the level of growth, whereas most platforms still charge a percentage of the invested amount.
Several platforms charge for one-offs such as taking a tax-free lump sum
So while Alliance Trust Savings tends to be more expensive for those with modest pots, it becomes increasingly cost-effective from around the £100,000 mark upwards, as our tables show. The same goes for interactive investor. The quarterly platform fee has risen from £20 to £22.50, adding £10 to the annual charge. This puts it at the more costly end for small pots but makes it great value for average and large portfolios.
The priciest platforms at the £50,000 level are among the cheapest at the £1 million end. There are exceptions, however. Hargreaves Lansdown remains a high charger across all pot sizes, although it becomes more cost-effective when drawdown functions are considered.
Remember that we are looking purely at the Sipp admin charges. The full fees you pay will be influenced by the functions you use and the charge that each platform levies for them, which we will move on to now.
Combined Sipp and drawdown charges (portfolio size as a %)
|AJ Bell Youinvest||£25+VAT one off income payment + £100+VAT a year regular income payment||0.55||0.4||0.31||0.21||0.15|
|Alliance Trust Savings||£23.75+VAT a month (increasing from £17.50+VAT while you are still saving)||0.68||0.34||0.14||0.07||0.03|
|Charles Stanley Direct||£150+VAT. Each benefit crystallisation event+ £50+VAT annual payroll fee||0.83||0.59||0.45||0.32||0.24|
|Fidelity Personal Investing||No additional charges for drawdown||0.35||0.35||0.2||0.2||0.2|
|Halifax Share Dealing||£180+VAT a year||0.54||0.36||0.14||0.07||0.04|
|Hargreaves Lansdown||No additional charges for drawdown||0.45||0.45||0.45||0.35||0.3|
|interactive investor||£100+VAT a year||0.66||0.33||0.13||0.07||0.03|
|iWeb||£180+VAT a year||0.54||0.36||0.14||0.07||0.04|
|The Share Centre||£195+VAT a year Set up for the first event is free, £225+VAT for additional flexi-access drawdown set-ups||0.81||0.5||0.2||0.1||0.05|
Notes: Includes initial and ongoing drawdown charges.Assumes investments in funds with no purchases or sales. Source: The Lang Cat, December 2018
SIPPS AND DRAWDOWN
Key to tables
Figures in green are best value, with yellow and orange figures less competitive. Figures in red are the worst rated for value.
The FCA’s review revealed that there are up to 44 charges on drawdown products and that six in 10 non-advised drawdown consumers don’t know, or are unsure, where their money is invested.
A glance at the tables shows how drawdown charges are factored into the costs paid by Sipp investors. This reflects the various events for which several platforms charge extra.
AJ Bell, for example, has a £25 fee for one-off events such as payments of income, tax-free lump sums or uncrystallised funds pension lump sums. So while it remains mid-range in relation to its peers, the extra charges will add considerably to the overall cost for some drawdown investors.
Similarly, at Charles Stanley Direct the £150 fee for each ‘benefit crystallisation event’ (taking money out of your pension) and the £50 annual payroll fee takes it from low-to-medium, in terms of pure Sipp costs, to the more expensive end of the scale for drawdown investors.
The same goes for Bestinvest. It is comfortably mid-range in terms of Sipp admin costs. However, for pots of £100,000 or below, it has a £100 initial calculation fee and a £100 annual charge for income, which see it jump to the more costly end of the scale for Sipp drawdown. At £100,000 and above, there is no annual income charge but there is a £90 initial calculation fee. Bestinvest also charges £25 both for ad hoc income payments and alterations of payment amounts or frequency (regardless of pot size).
Elsewhere, the £150 a year drawdown charge imposed by Charles Stanley Direct cements its status as one of the most expensive Sipp options across all pot sizes. But while interactive investor also levies drawdown charges (£100 a year), its flat fee structure ensures they are the cheapest options for Sipp drawdown investors investing £500,000 or more.
The impact of charges depends to some extent on the size of the pot. At the £50,000 point, there is a case for looking at platforms that don’t charge Sipp drawdown fees, such as Hargreaves Lansdown and Fidelity. At £100,000 and upwards, a flat fee operator comes into play.
The pounds table, on the right, underlines the difference in fees and therefore the potential impact on returns. Costs could reach a point where they will affect the level of income that can be drawn down and so threaten the very sustainability of the pot. That highlights the importance of reviewing what you want from drawdown, why you are with a certain platform and what you might gain from shopping around.
Sipp drawdown charges vary widely. For instance, if you have £50,000 in Sipp drawdown with Fidelity you won’t pay extra drawdown charges, just a £175 platform fee, but after offering one free withdrawal, The Share Centre would deduct £407 in fees.
At the £250,000 level, someone who chose Interactive Investor is paying £795 less in charges each year than someone using Hargreaves Lansdown. If you have £1 million or more in your Sipp and you are drawing down from it, Hargreaves Lansdown will charge you £2,670 a year more than interactive investor.
While in cost terms Hargreaves Lansdown is expensive for higher-end investors, its all-inclusive structure favours those making full use of the various drawdown functions. For example, if you are likely to chop and change funds, you will appreciate the likes of Bestinvest, Hargreaves Lansdown and Fidelity, which don’t charge for fund dealing.
Combined Sipp and drawdown charges (portfolio size in pounds)
|Provider||Drawdown charges||£50,000||£100,000||£250,000||£500,000||£1 million|
|AJ Bell Youinvest||£25+VAT one off income payment + £100+VAT pa regular income payment||£275||£400||£775||£1,025||£1,525|
|Alliance Trust Savings||£23.75+VAT per month (increasing from £17.50+VAT while you are still saving)||£342||£342||£342||£342||£342|
|Charles Stanley Direct||£150+VAT each benefit crystallisation event+ £50+VAT annual payroll fee||£415||£590||£1,115||£1,615||£2,365|
|Fidelity Personal Investing||No additional charges for drawdown||£175||£350||£500||£1,000||£2,000|
|Halifax Share Dealing||£180+VAT a year||£270||£360||£360||£360||£360|
|Hargreaves Lansdown||No additional charges for drawdown||£225||£450||£1,125||£1,750||£3,000|
|interactive investor||£100+VAT a year||£330||£330||£330||£330||£330|
|iWeb||£180+VAT a year||£270||£360||£360||£360||£360|
|The Share Centre||£195+VAT a year Set-up for the first event is free, £225+VAT for additional flexi-access drawdown set-ups||£407||£503||£503||£503||£503|
Notes: Includes initial and ongoing drawdown charges. Assumes investments in funds with no purchases or sales. Source: The Lang Cat, December 2018
There are hefty charges for taking your drawdown plan early or transferring platforms. Most platforms impose an exit penalty when you move. The size of that penalty could come as a shock if you don’t check beforehand, says Justin Modray, director at Candid Financial Advice.
“Some platforms, notably Fidelity, make no charge. Others can become very expensive. Hargreaves Lansdown charges £30 to close a Sipp account plus a further £25 to transfer cash and £25 per investment transferred in specie (where your money stays invested). So if you transfer an account of 20 funds in specie, it will cost you £530,” Mr Modray explains.
interactive investor decided to scrap all its exit fees at the end of 2018.
Most platforms impose an exit penalty, so check this out to avoid a shock
As The Lang Cat’s figures show, there are still only a few providers that offer drawdown functionality within the overall platform fee.
“Investors putting money in a Sipp should think about any additional drawdown costs if they are likely to withdraw their funds at some point in the near future,” says Steve Nelson, The Lang Cat’s head of research.
Our analysis of charges makes a strong case for shopping around, and that is before considering quality of service, the ability to adjust the amount of income taken and to make ad hoc withdrawals.
Sipp administration charges (%)
|AJ Bell Youinvest||0.25||0.25||0.25||0.18||0.14|
|Alliance Trust Savings||0.5||0.25||0.1||0.05||0.03|
|Charles Stanley Direct||0.35||0.35||0.35||0.27||0.21|
|Fidelity Personal Investing||0.35||0.35||0.2||0.20||0.2|
|Halifax Share Dealing||0.18||0.18||0.07||0.04||0.02|
|The Share Centre||0.35||0.27||0.11||0.05||0.03|
Note: Heat transfer shows admin costs relative to the group. See key opposite. Source: The Lang Cat, December 2018
This feature first appeared in our sister publication, Money Observer.
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