In his latest Guest Blog for us, Martin Tilley of Dentons Pensions suggested that over the coming months SIPP (Self-Invested Personal Pension) providers will soon be left to compete on just two key battlegrounds; service and charges.
As our SIPP Chat feature shows, many SIPP providers offer an excellent service. Although some of the recent reviews show others are getting things seriously wrong.
Martin’s piece on service is excellent and we’d urge all SIPP investors, Independent Financial Advisers and dare we say it, a few SIPP providers, to take a few minutes to read it, by clicking here.
As we said in a blog a couple of weeks ago, SIPP providers tend to charge fees on one of three ways:That brings us onto the subject of charges and in particular, how the SIPP industry, can help investors to better understand the fees they pay and the effect of these costs on their final pension income.
- Fixed fees
- Time-costed fees
- Percentage based fees
Each option has pros and cons and the best route is always down to your own individual circumstances, which brings us to a problem:
How can investors compare the fees of different SIPP providers?
We’ve been very impressed by the on-line calculator from Liberty SIPP, which allows you to calculate your fees and compare, to a degree at least, the cost of the Liberty Option SIPP with your current SIPP provider.
The launch of the calculator tells us much about that transparent nature of Liberty as an organisation, as well as the confidence they have in their offering, as it does about their charges.
However, as innovative as the Liberty calculator is, and we’re not aware of other SIPP provider doing the same, it doesn’t help us compare the costs of different SIPPs.
The obvious answer of course is an industry wide SIPP fees calculator, into which you could input your requirements and out pops a list of SIPPs with a cost comparison. As useful as such a calculator would be, we immediately run into a number of problems, including:
- How accurate would the results be? Especially when it came to providers who charge hourly rates for tasks as mundane as an Annuity purchase or distributing the fund if the member dies
- How would the results be calculated? The fees paid by an investor for their current circumstances might look completely different in a relatively short period of time if they change their investment strategy or retire and take benefits
- Finally, the calculator in itself could have unintended consequences. The natural inclination of many investors would be to select the cheapest SIPP. This could lead to investors making the wrong choice, forcing a move to a new provider, which in itself could be costly
Despite the problems and potential drawbacks we’ve tried to build such a calculator, but so far one which produces meaningful results has eluded us.
We’ll keep trying, but in the meantime how can you make sure you are getting if not the cheapest SIPP (which might not be right for a whole host of other reasons) but certainly value for money?
Simpler fee structures
Firstly, a plea to some SIPP providers; make your fee structures simpler and easier to understand!
We’ve seen fee schedules which run to a dozen pages, levy a fee for the simplest of tasks and frankly would challenge a member of Mensa to decipher.
Reading this some providers will scoff, and argue that such a change would actually increase charges and have a detrimental effect on the investor.
We don’t believe this is true for one second; there are a number of SIPP providers who run profitable businesses, with simple charging structures, which offer great value for money to the investor.
But until we see a simplification of SIPP fees, investors essentially have two options to calculate charges.
You could take the DIY approach. Start by excluding all the SIPP providers who won’t allow you to invest in the assets you want to buy. For example if you only want to hold deposit accounts or property, you immediately can rule out a number of SIPPs which don’t allow these assets. You might also want to rule some SIPPs out due to their historically poor service levels.
This will leave you with a shortlist, which in reality might not actually be that short!
For each SIPP on the shortlist you need to calculate the charges you will pay, both initial and on-going, over an appropriate time period, taking into account any changes in your circumstances you can foresee such as retirement or investment choice. Once you’ve done that you can compare the results.
The alternative is to get an Independent Financial Adviser to do the work for you. Of course you will pay a fee, but if you choose the right IFA, who specialises in self-invested pensions you will get:
- An expert who knows the market and will have access to SIPPs which do not take applications directly from the investor
- A full recommendation as to whether a transfer to a new SIPP provider is in your best interests
- Alternatives options, for example a SSAS (Small Self-Administered Scheme) might be a better option
- Where required, advice on your investment options
- Regulatory protection and redress options if the advice turns out to be wrong
- Help processing the paperwork when a transfer is appropriate and in your best interests
Of course you will also save time and a lot of brainpower!