If you want more control of your pension investments, but you don't want to pay over the odds, a low cost SIPP could be the answer.
SIPPs - or self invested personal pensions - come in all shapes and sizes. Last week I explained the differences between each of the main types in how to choose the right SIPP.
Now I want to look at the low cost version more closely. Full blown SIPPs still only really work for savers who already have a big pension pot. These plans usually have a high, flat charging structure which is much more cost effective for larger pension funds. But these days the newer low cost version puts SIPPs in reach for many more of us.
Why choose a low cost SIPP?
Low cost SIPPs give you far more investment freedom than you would get from a traditional personal pension. Often you'll be able to invest in a wide range of assets including investment funds and shares.
Self investing enables you to get far more involved with your own retirement planning without having to pay the sky high costs associated with full blown SIPPs. And they're also a great way of bringing together all your other pensions into one place making them easier to manage.
Low cost plans don't normally charge you set up or annual fees on the SIPP wrapper itself, but you should expect to pay dealing costs if you want to buy and sell shares. If you put your money in investment funds, you'll usually have to pay an initial charge and an annual management charge (AMC) to cover the fund manager's costs. But most SIPP providers negotiate significant discounts which bring these costs down.
Which low cost SIPP should I choose?
There are loads of SIPPs on the market, but only a handful are low cost. I'm going to look at the pros and cons of five well-known plans.
So, first up...
Sippdeal e-SIPP
If you're looking for a wide investment choice then the Sippdeal e-SIPP could be the one for you. You'll only need to invest a minimum of £50 a month (or £1,000 as a lump sum) making this plan available to just about everyone.
Here are some of the investment options: Over 2,500 discounted investment funds and investment trusts, shares, gilts, corporate bonds, exchange traded funds, AIM shares and some European and US shares.
You'll be charged a flat fee of £20 every time you want to switch an investment fund. But over 900 funds have no initial charge and over 1,600 have an initial charge of 0.5% or less.
Share dealing costs are tiered starting at £9.95 for deals below £500 rising to 0.75% for deals over £2,000 (maximum charge of £30).
There are no set up or annual fees on the wrapper, but pension transfers cost £50 + VAT.
Alliance Trust Savings Select SIPP
This is a great choice if you want to trade shares with fixed dealing costs of just £12.50. Other SIPPs operate tiered charges depending on the size of the deal, so fixed fees are an advantage if you want to buy and sell shares regularly - especially if your share transactions involve relatively large amounts of money.
What's more, there's a pretty wide range of investment choices on offer including a fund supermarket, shares, exchange traded funds, gilts and preference stocks.
On the downside, there's an annual fee of £75 + VAT which is unusual for a low cost SIPP wrapper. Unfortunately, this makes the plan relatively expensive if you only invest the minimum contribution of £50 a month. But you might feel this cost can be offset if you plan to save a bit more and trade shares frequently.
If you want to consolidate all your schemes into one plan, there's a pension transfer fee of £50 + VAT.
Fidelity Personal Pension
Confusingly this is actually a SIPP despite its name! And it's a good choice if you want something nice and simple.
You can't trade shares, but you'll have access to over 1,100 funds offered by Fidelity Fundsnetwork, as well as some funds offered by Standard Life. Again, many have discounted charges.
You'll need to invest at least £300 a month or £3,000 a year (or a one-off amount of £10,000) so this plan is only suitable for you if you want to save a bit more.
That said, there are no set up or annual fees on the SIPP wrapper and no cost for pension transfers. This makes the Fidelity Personal Pension a true low cost scheme.
Hargreaves Lansdown Vantage SIPP
Vantage has a huge choice of over 2,000 investment funds from 190 leading fund managers. Many have a full discount on the initial charge, with a reduction of up to 0.5% on the fund manager's AMC.
This plan is a good choice if you want to start small. You'll only need to invest £50 a month - or £1,000 annually - to get started. There's no set-up charges to eat into the value of your SIPP. For cash holdings in the SIPP bank account, and for over 1,900 funds, there's no annual fee on the wrapper.
For other investments, there's an annual charge of 0.5% + VAT (maximum of £200 a year). Online share dealing costs start at £9.95 for deals up to £499, rising up to £29.95 for deals over £20,000.
Overall, Vantage can be a cheap option as long as you invest in the right funds, and you only trade smaller quantities of stocks. Even better, other pensions can be transferred to Vantage for free.
James Hay e-SIPP
Here you can invest in a choice of funds from James Hay's Collect and Select ranges of funds from various managers. There are discounted charges on over 1,200 funds. The minimum investment is £500 into each fund or £250 a month. Collect funds have no initial charges and an average AMC of 0.35%. Meanwhile Select funds have no initial charges and an AMC of 0.75%.
This plan is another good option for share dealing with costs fixed at £14 per trade, with no minimum investment. But there are no other investment options, making this SIPP fairly limited compared with some of the others.
Again there are no set up or annual charges on the SIPP wrapper, but there's a £50 fee for pension transfers.
So, that's my rundown of what to look out for with these five low cost plans. The best one for you depends on how you plan to use the SIPP, but hopefully this article will give you some pointers. I've run through the main charges here, but there could be others if you want to invest in different assets.
There will also be costs when you want to take benefits at retirement, so it's worth checking these out too. And don't forget, as with many other pensions, if you're not happy with your SIPP, vote with your feet and transfer it to a new provider.
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