SIPPs (Self-Invested Personal Pensions) are now a mainstream way of saving for your retirement. Indeed recent figures have shown there are now more than one million SIPP’s in existence.
So, if you are one of the million or so people with a SIPP, how do you know you have the right SIPP? What questions should you ask your SIPP provider? What information should you know but perhaps don’t?
Read on to find out 12 things every SIPP investor should know.
We’d place a small bet that many people, especially those who have invested directly with a SIPP provider, don’t know exactly what they are being charged.
We might be wrong, but when did you last sit down and work out how much you were being charged for your SIPP? And compared it to alternatives? If it’s more than a couple of years ago we’d recommend you take a look at your SIPP and see how competitive the charges are.
2. Are you paying for a SIPP you don’t need?
Many SIPPs allow a wide range of investments and charge a flat annual fee, rather than asking you to pay for what you use.
We regularly talk to investors, who are paying fees for investment flexibility they thought they would need, but in reality are not using.
Check what you are paying and compare this to what you actually need, you might find you can actually reduce your annual fees.
3. Are you paying fixed fees or hourly rates?
Some SIPP providers still charge hourly rates for the work they undertake. In our experience SIPPs are more cost effective when arranged on a fixed fee basis.
Check whether you are paying your SIPP provider by the hour, if you are, consider moving onto a fixed fee basis, which is how the majority of SIPP providers charge and usually works out to be cheaper.
4. How are your investments performing?
In our experience SIPP investors are pretty good at keeping track of how their investments are performing, but that doesn’t mean everyone is.
If you don’t know how your investments have performed over the past couple of years, now’s the time to review what you hold and consider whether it’s appropriate for the months and years ahead.
5. How much are you paying your adviser?
We quite regularly talk to SIPP investors who have used an Independent Financial Adviser (IFA) to set up a SIPP, but have not had any contact for a considerable period of time, yet are still paying on-going fees to the original adviser.
In an increasingly transparent age this is just wrong. If you think your original adviser might be taking on-going fees call your SIPP provider and check.
Why should you pay for a service you are not receiving?
6. What return do you get on cash?
There are many reasons why you might want to hold large amounts of money in cash within your SIPP. Perhaps you have just surrendered an investment, you are waiting to make a large purchase or you are nervous of the current levels of the stock market.
Every SIPP has a cash account chosen by the SIPP provider. This account is designed as a temporary home for cash before it is put to better use. But do you know the interest rate you are getting on the SIPP cash account? Furthermore, did you know you might be getting less than you are due, because your SIPP provider is taking some of the interest?
If you regularly hold large amounts of cash, check these two things with your SIPP provider; if you don’t like their answers you get, perhaps you should consider alternative options.
7. Can you use other SIPP deposit accounts?
One such option is to use an alternative instant access SIPP deposit account, such as those offered by the Leeds Building Society, Cater Allen and the Bath Building Society, to name just three.
Why lose out on interest which is rightfully yours?
Of course you should check your SIPP provider allows you to open alternative deposit accounts, not all do and some will make additional charges.
8. How secure is your SIPP provider?
Whilst your money is protected if a SIPP provider fails, it makes sense to do some research into the financial position of your SIPP provider. Are they profitable? Do they have positive cash flow? How much capital do they have in reserve?
If your SIPP provider fails, it could cause you a significant administrative headache. It will not doubt mean a change in SIPP provider, possibly an increase in fees and potentially difficulty in making investments for a period of time.
Do your due diligence on your SIPP provider, even if you have been with them for a long time. It might sound as though you are planning for the worst, but sometimes it happens!
All SIPP providers will promise you great levels of service, but how do they shape up in reality? Finding out can be hard.
Taking a recommendation from an Independent Financial Adviser is one way, after all you wouldn’t expect a provider with a poor service record to be recommended to you.
Alternatively you could log on to our SIPP Chat feature, which is essentially Trip Adviser, but for SIPPs. You can leave a review of your own SIPP provider and read the thoughts of other investors too.
10. Will you get the access you need?
It’s important you get the access you need to your SIPP.
Some providers have excellent online functionality, allowing you to not only see valuations but also trade in real time, others are some way behind when it comes to technology.
You might not need access to a sophisticated online system and prefer to deal through your adviser or over the phone with your SIPP provider.
Whichever option you prefer, make sure your SIPP provider can deliver. Making a mistake and could mean an expensive transfer to another provider.
11. Will they restrict your investment choice?
Over the past few months we’ve seen an increasing number of SIPP providers restrict the types of investments they will allow to be held within their SIPP.
What’s more, these new restrictions have applied to existing clients, which would mean that if you want to top up, or roll over an investment, you will have to transfer away to an alternative SIPP provider, which could be costly.
Before you select your SIPP try to understand whether they plan to restrict investment choice, which is often due to point 12, below.
12. How will they cope with regulatory changes? Are they financially stable?
The Financial Services Authority (now the Financial Conduct Authority) published their CP 12/33 consultation paper last year, the impact of which is already changing the face of the SIPP market.
In a nutshell, the likely outcome of CP 12/33 is a significant increase to the amount of capital SIPP providers need to hold. Additionally, the amount will be linked to assets under management, rather than the number of SIPPs administered and also the types of investments held by members.
Any increase in the capital required by SIPP providers will have three main outcomes. Firstly, we will see smaller SIPP providers get taken over by larger players, this process has already started. Secondly, some SIPP providers will be forced to increase their fees. Finally with the capital requirement being linked to the size of assets held, we believe some SIPP providers will move away from fixed fees to percentage based fees.
We are also seeing some SIPP providers restrict the type of investments they will allow to try and get a reduction in the amount of capital they will need to hold under the new rules.
Whilst CP 12/33 is ultimately designed to protect the SIPP investor and might seem like an obscure piece of legislation, there is no doubt it will affect you and your SIPP for many years to come.
Check how well placed your new SIPP provider is. Are they profitable? Do they have reserves to meet the new requirements? How much exposure do their members have to risky investments?
Reviewing your SIPP
A SIPP is no different to any other investment vehicle; it should be reviewed on a regular basis.
One option is to do it yourself, although this can be time consuming and tricky if you don’t have an in-depth knowledge of the market. The other alternative is to use an Independent Financial Adviser, such as Investment Sense, who specialises in SIPPs.