Tailored Sipp may suit you down to the ground

With Sipps, as with many things in life, you get what you pay for.

A low-cost Sipp is the equivalent of buying a suit off the peg. The alternative is more like going to a tailor to be measured up – paying a specialist Sipp provider to manage your investments, with an investment portfolio designed specifically for your needs and preferences.

“What you are essentially paying for with a ‘high-end’ Sipp is service and quality of advice,” says John Andrews, head of HSBC’s Sipps practice. “Low-cost or internet Sipps are more ‘do-it-yourself’, which may result in falling foul of technicalities – such as nominating the end of pension input periods. The benefits of a high-end Sipp include a much wider range of investment opportunities than an eSipp and the ability to invest directly in commercial property.”

Providers of high-end Sipps also claim they act more genuinely in clients’ interests. For example, Richard Meek, a principal at financial adviser Punter Southall, says low-cost Sipp providers “dictate what you’re allowed to buy to suit them”. He claims: “On the other hand, as long as it complies with the rules of pensions, high end Sipps will do what you want them to do.”

“Dedicated administration” is another advantage of full-service Sipps, according to Claire Court, head of self-
administered pensions at Origen, the financial adviser. She says: “Today’s complexities of contributions, benefits and investments mean that it is a valuable benefit to have a real person to speak with to resolve queries. Clients are not prepared to live with the call centre approach whereby no one person takes accountability for their Sipp.”

Yet despite these advantages, relatively few investors are willing to pay for a full-service Sipp. “The market is still not that big because it still requires the client to know what they’re doing and to have a strong interest in their investments,” says Meek. “However, the market is growing more quickly than it was.” He says this has been particularly true since A-day a year ago, when pensions rules changed to allow an annual contribution of up to £215,000 into a Sipp. “The increased allowance means people can now put enough money in to do something really interesting with it, such as investing in fine art,” he says.

This reinforces the image of full-service Sipps as an upmarket investment – the financial equivalent of a Mercedes or Jaguar. Meek says they are popular with
property lawyers, investment professionals and others who have their own opinions about how to invest their money.

But you do not need to be a high-roller for a full-service Sipp to be worthwhile. Typical costs could be an initial fee of £350 plus VAT, and an annual charge of £400 plus VAT, according to Hyman Wolanski, head of pensions at Alliance Trust. You are likely to pay extra fees for non-standard investments. Wolanski estimates that there are about 75,000 full-service Sipps in force at present.

Peter Thomson, chief executive and chief investment officer of Taylor Young Investment Management, says the total annual cost of a full-service Sipp should be between 1.25 per cent and 1.75 per cent of assets under management. He says this compares favourably with the “opaque charging structures” of other investment vehicles.

Although non-standard investments cost extra, Sipp providers say they are one of the main reasons why customers opt for full-service Sipps. “With a ‘high-end’ Sipp the flexibility and investment options are likely to be much larger,” says Chris Smeaton at James Hay – one of the UK’s largest Sipp providers, with over £11bn assets across its Sipp and wrap platforms.

Listing the types of investments available to James Hay’s Sipp customers, Smeaton reels off unit trusts, investment trusts and open ended investment companies or Oeics; individual stocks and shares, both in the UK and overseas; commercial property investments; structured products that limit the investor’s risk, such as covered call funds; low-risk fixed-interest bonds and cash deposits; and investments via third party stockbrokers or discretionary investment managers, who take decisions on your behalf.

Property syndicates are one example of the unusual investments you can only access through your Sipp if you go for the full-service variety. Thomson says they are the subject of “growing interest with strong performance of the asset class generally as interest rates have fallen over the last 20 years”. He says their advantages include “stable performance and lower correlation with other asset classes and high and growing yields at rates typically in excess of inflation, even if inflation accelerates over time”. But he says there are doubts about “whether syndicates are big enough to be able to access flagship properties with the strongest tenancies and top locations”.

Barrie Johnson, corporate and pension specialist
at Norwich and Peterborough Building Society’s Independent Financial Advice Service, also warns that Sipp
investors should consider the downside of property syndicates.

He points out that these syndicates can mean investors have “all their eggs in one basket”, and also have liquidity problems that can make it difficult for an
individual investor to sell their stake.