Pension savers who want to manage their own portfolios of shares and funds can choose from a number of low-cost self-invested personal pensions (Sipps) that have few charges other than for dealing – and which in some cases even rebate part of the annual management fees on funds.
However, which low-cost Sipp offers the best value depends on whether you invest in shares or funds, the number of trades you make and the size of your pension portfolio.
Matt Ward, analyst at Defaqto, the research firm, says investors should look beyond plans’ low management charges. “If you’re a regular trader, you need to look at how dealing costs could add up,” he says.
Sippdeal’s eSipp has no set-up or annual fees and charges just £9.95 for online dealing, making it top value for share investors as well as for those trading other listed holdings such as exchange traded funds and investment trusts.
But the £9.95 charge is also levied on all purchases and sales of unit trusts and open-ended investment companies (Oeics) – making it particularly expensive for monthly investing. With many other investment services, there is no dealing commission on these fund types.
Sippdeal says it is about to improve its terms for unit trusts and Oeics. In a change due to take effect before the end of the tax year, it will rebate typically 0.25 to 0.35 percentage points of funds’ annual charges to investors.
Discounting of initial charges on funds is commonplace (and Sippdeal already offers this). But most investment services do not rebate any of the annual charges, from which intermediaries typically earn ongoing commission of 0.5 of a percentage point.
Billy Mackay, Sippdeal’s marketing director, says: “Previously we’ve been favoured by share traders – the rebates will increase our attractiveness for funds.”
Even so, Sippdeal looks set to remain costly for lower-value investments in funds and monthly investing.
Alliance Trust’s Select Sipp gives higher annual rebates on funds, typically 0.5 to 0.75 percentage points a year – which in many cases halve funds’ management charges to below 1 per cent.
But its £12.50 sharedealing charge also applies to funds, and the plan carries a £125 plus Vat annual fee for new customers.
Alliance Trust could therefore offer better value than Sippdeal for investors with substantial fundholdings – depending on the commission rebates – but it would be more expensive for smaller portfolios.
For investors who only want funds in their Sipp, Cavendish Online, an Exeter-based discount broker, could also offer good value for portfolios worth more than £150,000.
Cavendish, which uses the Fidelity FundsNetwork investment service, rebates all the annual commissions it receives on funds, typically 0.5 of a percentage point, for a one-off fee of £50.
There are no fund dealing charges and, on plans worth £150,000 or more, Fidelity’s normal set-up and annual fees (£108 and £269 respectively) are waived.
For people with smaller pension portfolios, as well as those who want to invest on a monthly basis, Hargreaves Lansdown’s popular Vantage Sipp could make sense.
It does not give annual fee rebates to Sipp investors (although these are available on Isas), but it has no plan or dealing charges on most funds.
One problem common to low-cost Sipps, however, is that they rarely offer competitive cash options. Interest rates on Sipp cash are generally a fraction of a per cent or even zero.
Unusually, Fair Investment’s new Sipp offers a cash rate of 2 per cent as well as giving rebates on fund fees – but it carries a plan charge of 0.85 per cent a year.
With ongoing competition among low-cost Sipp providers driving improvements such as annual rebates on fundholdings, Justin Modray, founder of CandidMoney.com, an advisory website, suggests that the “next big step forward could be more choice on cash”.
But, as the Sipp market is still developing, investors should also watch out for exit fees. Currently, these can total up to a couple of hundred pounds, which may be tolerable for substantial pension portfolios but could seem costly for smaller transfers.
Ian Williams of Cavendish Online says that the Retail Distribution Review (RDR), a regulatory change due to take effect from the end of 2012, will make fund commissions more transparent and could prompt pricing changes among low-cost Sipps.
Justin Modray says: “It’s still very early days for Sipps and there will be better plans in the future. People in mid or early career may well want to switch in coming years.”