Standard Life – the biggest provider of self-invested personal pensions (Sipps) – is increasing the charges for tens of thousands of investors in its plans and introducing a £750 exit penalty for new customers.
The increases contrast with broader falls in the cost of Sipps in recent years as providers have competed to attract DIY pension investors.
Standard Life’s existing plan charges are rising by 4 per cent, with the initial charge on its “full Sipp” – which permits commercial property and direct share investment – increasing by £13 to £326, and the annual fee going up £17 to £448.
In addition, customers who take out a plan from January will be subject to a £750 “early transfer out charge” if they then switch to another pension provider in their first year. Currently, the firm has no exit fees.
Alistair Hardie, Standard Life’s head of Sipp, says this new charge has been introduced to deter financial advisers who have taken advantage of the company’s low fees to use it as a “clearing house” – consolidating their clients’ pension plans by transferring them all to Standard Life, before moving the funds on to another Sipp provider.
“We have a very good reputation for administration,” Hardie says. “But if we’re going to do all the upfront work and then lose the money, our message is ‘we don’t want your business’.”
He explains that because Standard Life does not have “transfer in” charges on funds switched from other providers – or fees for switching out – such transactions have been “destroying value” in its business. The company has seen about 125 of these in-and-out cases in the past year.
“The £750 makes a contribution to our costs – it could be more,” he says, adding that a number of other Sipp firms have transfer-in charges while also taking their first annual fee upfront to help cover their set-up costs.
David Abbis, Sipp analyst at Defaqto, the research firm, says Standard Life’s new fee is among the highest in the marketplace, with most firms charging under about £200 for transfers out.
Tom McPhail, head of pensions research at rival Sipp provider Hargreaves Lansdown, adds that the penalty appears “calculated more for deterrent effect than for the cost of work involved”. He says that Hargreaves – which has no initial or transfer-in fees and charges £75 for transfers out – has no plan to change its fees.
However, Standard Life insists that its new £750 fee is line with the regulatory principle of “Treating Customers Fairly” (TCF) because it is transparent and will only apply to investors who became customers of the firm from January. It will also only apply in the first year of investment.
“We’re not applying it to existing customers – which would not be TCF,” says Hardie. He also explains that the charge will be waived for transfers out related to “life events” such as divorce, terminal illness or death.
With 95,000 plan holders and an average portfolio size of more than £140,000, Standard Life is the UK’s number one provider of Sipps. Currently, it only offers its plans through financial advisers and its own wealth managers, although it is expected to allow “direct” investments in coming months.
Its fee increases come as intense competition continues among Sipp firms. According to Defaqto, the average annual fee on a £50,000 portfolio has fallen 10 per cent in the past year to £360, and initial fees have now come down to an average of £240 for a £50,000 investment.
Last year also saw the launch of the low-cost Sippdeal eSipp, from AJ Bell, another leading provider, which has no upfront or annual fees, and charges only £9.95 for online dealing. It levies £75 plus Vat for transferring out, with an extra £20 per line of stock for “in specie” (non-cash) transfers.
With the market still developing, experts say investors should beware high exit charges in case a better plan subsequently emerges that they want to switch into.
However, Defaqto’s Abbis warns that providers’ running costs are increasing, which will limit the scope for further trimming of fees and could mean pressure for more price rises.
●Investors in “stakeholder” pensions – a plan established by the last government to provide a low-cost retirement savings option – have seen annualised growth of 4.38 per cent since launch in 2001, according to analysis by MetLife, the pensions company.
Someone investing £100 a month in a FTSE-linked stakeholder scheme from launch would now have a fund of £13,994, MetLife estimates. However, volatility during the period since the scheme was introduced has meant investors have suffered negative returns in four of the nine years since its launch. Even so, MetLife describes the scheme as a “qualified success”.