New research from Investec Wealth & Investment has highlighted that many SIPP (Self Invested Personal Pensions) investors are failing to use the full functionality available to them.
Amongst other things the research showed:
- Only 37% of SIPP investors said they had enough time to devote to the running of their SIPP
- Only 45% of DIY investors understood the charging structure of their SIPP provider
- 15% of DIY SIPP investors said they were likely to appoint an adviser within the next year
We would hope that clients of IFAs are only recommended SIPPs when they are deemed appropriate. However, if the research from Investec is correct, it seems that many DIY investors are opening SIPPs, after finding the additional flexibility appealing, and then fail to use the extra investment options they are paying for.
In our experience DIY SIPP investors generally select their own shares or funds, buy property or hold SIPP deposit accounts. Whilst some people clearly need the additional functionality that a SIPP provides, you cannot after all hold a property or a SIPP deposit account in a Personal Pension or Stakeholder, we do see people who have SIPPs who frankly do not need them.
Why use a SIPP?
There are a number of reasons why a SIPP might be the right investment vehicle, these include:
Wider investment powers. As most people know, a SIPP can invest in a wider range of assets than other types of pension. If you want to buy a commercial property in your SIPP, invest in a deposit account, or directly held shares, a SIPP is the only option.
DIY investment. The rise of DIY platforms, such as Best Invest or Hargreaves Lansdown, has principally been because many people want to have more control over their investments and make decisions for themselves, rather than use a financial adviser. In these days of online trading managing your own investments via a SIPP is generally easier than a Personal Pension or Stakeholder, plus, there is typically a wider range of funds and directly held shares to choose from.
Fixed costs. SIPPs often have fixed costs, which mean they can work out cheaper than Personal Pensions or Stakeholders, for people with larger funds. Each individual set of circumstances are different, but as a rule of thumb, the larger your pension fund, the better off you are paying fixed fees, rather than percentages.
How to choose the right SIPP
There are a number of things you should remember when you are looking for the right SIPP:
- Don’t start with cost, refine your initial search by only including SIPPs which allow the investment flexibility you need
- Once you have a list of SIPP providers, who allow you to hold the assets that you require, then start to look at cost. Remember to factor in initial fees and ongoing costs as well as looking at how much your costs may rise if you have a change in circumstances. For example some SIPPs make additional charges if you move into Income Drawdown or buy an Annuity.
- Factor in leaving costs. If you don’t get on with a SIPP provider and want to leave, how much will they charge you? We have seen transfer out costs as high as £500, that’s a lot of money to pay to leave.
- Now look at other things, which are maybe not so black and white. Does the SIPP provider offer online access? Do they have a published service standards? What are people saying about them online?
- Finally, take a look at the profitability of the SIPP provider you have chosen. You might think this has little bearing on you, but it does. What happens if your SIPP provider is taken over because they are unprofitable? Will fees rise? How much disruption will you have to put up with?
We have seen examples of SIPP providers being taken over and fees rising considerably. Whilst it isn’t always easy to confirm the profitability of a SIPP provider, we’d always recommend that you make an effort to look into this as well as considering the financial stability of the provider, for example do they have more than the minimum required by the FSA in their reserves.
In the right circumstances SIPPs can help to aid more flexible retirement planning and don’t necessarily have to be more expensive than other options.
But it’s all about choosing the right SIPP provider for your needs.
If you are a DIY investor we have various tools on our website to help you:
Of course if you would prefer to be given guidance and advice our team of SIPP specialists are here to help. The SIPP team are experienced in providing advice to all types of SIPP investors and can help you make the most of your SIPP, whilst avoiding many of the pitfalls many people fall into.
You can call one of our SIPP specialists today on 0115 933 8433, alternatively enquire online or email firstname.lastname@example.org