Whether you are using your self-invested pension to save for retirement or want to generate income, picking the right platform can save you thousands in fees.
Self-invested pension plans (Sipps) are the DIY of the pension world. Rather than using a traditional pension provider to invest in a – sometimes – limited number of pension funds, Sipps give you the chance to pick exactly where you want your money to go. This can include funds, investment trusts, exchange traded funds and shares.
However, while the Sipp market might be fiercely competitive, finding the right platform might not be straightforward and the wrong choice could prove costly.
A report published by the Financial Conduct Authority in July 2017 warned that the majority of those using a Sipp for income drawdown chose their provider’s default option, rather than looking for a better deal elsewhere in the market.
Data from the Association of British Insurers (ABI) backs up this analysis, suggesting that when a customer gets financial advice they often find a better deal. The ABI says 94% of its member firms’ non-advised drawdown sales were to existing customers, versus just 35% when the consumer had taken financial advice. So it pays to shop around.
“When you consider that you may need to fund 30 years or more of retirement, paying more in fees than you need to can have a huge impact on your Sipp savings,” says Steve Nelson, head of research at platform comparison service The Lang Cat.
“Some platforms offer more bells and whistles than others, but they can cost more. That’s fine if you need all the extras, but if you don’t you could be needlessly eating into your future retirement fund.”
Pick a winner
There are many things to think about before you pick a platform, but for most people the two biggest considerations are the total size of your pension savings and how often you’ll be trading – that is buying or selling shares or funds.
The key charge to consider is the annual fee levied by your platform in order for it to hold your pot and, frustratingly for consumers, there is no standardised charging structure across the industry.
This can make it difficult to compare what’s available and how much it will cost. Some platforms charge a flat fee for the year, while others take a percentage charge based on the total value of your platform. Percentage charges are often tiered, with rates dropping for the largest portfolios. Pick the wrong one and you could be left out of pocket.
As a rule of thumb, a flat fee is usually cheaper for those who have a large pension while those with smaller sums tend to find a percentage fee works out better value.
Where does the tipping point lie? Mr Nelson says: “This varies depending on individual circumstances, such as the investment type and trading volumes, but a broad rule of thumb is once you reach the £100,000 mark the flat fee providers start to look good value.”
You need to consider the number of trades you make each year. Many platforms, including Fidelity, Aviva, Charles Stanley Direct and Hargreaves Lansdown, don’t charge for fund transactions but others do, with Halifax Sharedealing charging £12.50 each time. Alliance Trust Savings offers four free trades each year but £9.99 thereafter, while Interactive Investor’s quarterly fee can be treated as credits for trading. There will usually be a fee for share trading, with charges often decreasing the more frequently you trade. These charges will therefore be a very important consideration for active investors, but will be less important for buy-and-hold investors who will be making less frequent changes to their portfolio.
A varied market
Analysis conducted for Moneywise by financial services consultant The Lang Cat shows vast differences between providers (see tables below). The cheapest Sipp platforms for an investor with a £100,000 lump sum – making no trades – are Halifax Share Dealing and iWeb. Both charge fl at annual fees of £180 for portfolios over £50,000.
However, Mr Nelson says these two platforms offer less functionality and editorial content than slightly more expensive options for this investor type, such as Interactive Investor, Moneywise’s parent company.
“Charles Stanley Direct and AJ Bell Youinvest are also decent value for this portfolio size, offering fully featured platforms for 0.25%,” he says. AJ Bell, for example, offers regularly updated video content, while Charles Stanley allows you to track funds and shares for a period before you invest.
Highlighting the difference between providers, the most expensive option, Willis Owen, would charge £500 in annual fees for the £100,000 portfolio – £320 more than Halifax Share Dealing and iWeb. Willis Owen’s Sipp charge is made up of a 0.6% fee on the first £50,000 in the portfolio and a 0.4% charge on the remaining £50,000.
For those with a larger portfolio who make a limited number of trades each year, iWeb came out top in our analysis. For a £200,000 portfolio making two trades a year, it would charge £190 a year – the £180 annual fee plus £5 for each trade.
This compares with a whopping £725 in fees with Aviva. Its total is made up of a 0.4% charge on the first £50,000 in the portfolio and a 0.35% charge on the remaining £150,000.
When we consider investors with a larger portfolio who trade frequently and hold both funds and shares, Interactive Investor – Moneywise’s parent company – takes top spot. It charges £220 for a £500,000 Sipp portfolio – made up of £475,000 in funds and £25,000 in shares – when there are 10 trades a year, eight fund trades and two share trades. This £220 charge is made up of a £120 annual fee, plus £10 for each of the trades made over the course of a year.
This is £1,604 cheaper than the most expensive platform, Hargreaves Lansdown, which would charge £1,824 for a Sipp of this nature.
This cost breaks down as 0.45% charge on the first £250,000 funds, 0.25% on the remaining £225,000 and 0.45% on the £25,000 in shares. There are no fees for fund dealing, but the two share trades will cost £11.95 each.
Mr Nelson says for this level of investment, users may want to review other features offered by a platform, such as online calculators and readymade portfolios. Active share dealers may also want to run share watch lists, get live prices and price alerts.
“For a portfolio of this size, you now start to see the fixed-fee approach pay dividends. The likes of Alliance Trust Savings, Interactive Investor and The Share Centre look like good value here as examples of platforms that offer a fixed fee but are also fully featured too, compared to the likes of iWeb and Halifax Share Dealing.”
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The platform charge is not the only fee investors need to consider. Sipp customers should also make sure they have factored in charges for income drawdown and one-off charges for making lump sum withdrawals. Rodolfo Crespo, senior analyst at Platforum, says just focusing on the platform fee is a common mistake. “Investors may put excessive focus on the Sipp account fee and forget about other charges that will come up at some point in the retirement journey,” he says.
Ongoing fees must also be balanced against exit fees you may face if you transfer to another provider.
“Exit charges are also important as they vary substantially between providers,” adds Mr Nelson. “You may decide to switch provider at some point, and it’s important to know you can get your money out without paying an arm and a leg for it.”
He says this can include product fees for switching to another provider, a fee for exhausting your drawdown pot soon after opening a contract – typically around £200 to £300 – and fees of between £10 and £20 for each equity you transfer.
“There may also be separate set-up and ongoing charges for income drawdown, so you may want to choose a different platform when you are saving to when you are taking an income.”.
Several platforms – such as Aviva, Fidelity Personal Investing, Hargreaves Lansdown and Saga Investment Services – have no ongoing drawdown charges. By comparison, Alliance Trust Savings charges a hefty £234 in fees each year for drawdown.
The list of charges will vary between providers, so before making any decision check the Sipp’s website – it should have a page listing its fees.
Most people will want to make sure they’re getting the cheapest deal, but Mr Crespo also warns consumers not to concentrate too much on price alone.
“Investors are becoming more cost-conscious, and price is becoming a bigger factor in platform selection,” he says. “However, the overall cost of the service is not the only consideration for investors, who should also consider a range of attributes including trust in the brand and website usability.”
It is also important to look at the services each Sipp offers investors. Platforms such as Hargreaves Lansdown and Interactive Investor offer a wealth of editorial content to their customers. This could be important if you plan to actively manage your portfolio.
Good content, online tools and financial calculators can also help customers make more informed decisions about their portfolio. Most providers offer readymade model portfolios, which can work well for customers who want to invest, but lack the time or knowledge to choose investments on their own.
These are tailored to whether you want to be balanced or adventurous with your holdings and whether you’re looking for future growth or a regular income. Mr Nelson says the exact portfolio you should pick depends on your circumstances, but that investors must be aware of what lies within these model portfolios.
He says many platforms offer you portfolios of funds from sister companies. For instance, BestInvest directs you to Tilney, Fidelity Personal Investor uses Fidelity funds and Aviva utilises its own funds.
“There’s nothing overtly offensive about this,” he argues. “You are often being ‘sold’ as much as you are being ‘helped’. It’s a perfectly reasonable thing to do, but customers need to be mindful of this.”
Mr Nelson says True Potential allows its users to set investment goals, such as building a suitable pension pot before retirement and tracking progress against this benchmark. If users feel they are falling behind target, they can add a quick top-up to their account to ensure they remain on target. This can be done on the go, using True Potential’s mobile app.
Mr Crespo says investors may also want to choose a platform which also offers Junior Sipp accounts. These are often useful ways to gift cash to relatives and start building their pension pot while reducing your own inheritance tax liability.
Think too about how you want to engage with your Sipp. According to The Lang Cat, platforms remain way behind high street banks in the development of smartphone and tablet apps. A handful allow you to manage your account on the go, but others have limited or no mobile functionality.
AJ Bell, Hargreaves Lansdown and Interactive Investor are major players which have fully functional apps on Android and Apple devices, but Mr Nelson remains frustrated by the progress across the rest of the sector.
“App content is an area of the market that continues to disappoint us,” he says. “There are a handful of providers that have invested time and effort into producing content designed to engage the end customer, but, by and large, there’s significant room for improvement in the industry.”
Choosing the right Sipp platform can save you thousands over the investment term, yet many people still fail to make the right decision, considering their needs and portfolio size.
“The most common, and costly, mistake is to pay for more functionality than you need,” warns Mr Nelson. “When choosing a platform, consider what investments you want to hold, how often you are likely to trade, what functionality you will need and how much help you want along the way. For example, if you would describe yourself as an investment expert, then editorial content or suggested fund lists are unlikely to appeal to you, and it’s likely that you’d feel more at home in a bare-bones platform that leans towards functionality and investment range.”