Last month I looked at how important cost was when choosing a SIPP provider.
The conclusion I came to was that whilst cost was an important factor in choosing the right SIPP, getting the level of investment flexibility right was the first priority; only once this had been done did cost come into play.
It’s fair to say that there is a correlation between charges and investment flexibility with many of the lower cost SIPP providers not allowing some more complex investments and property purchase in their SIPPs either at all or without a significant increase to charges.
So where do you go if you want to access a wider range of investments? How should you go about choosing the right SIPP?
First things first, consider where you want to invest
To a large degree the story is the same as last month; think about what you want to invest in first and then select your chosen SIPP provider.
The starting point with any investment is to make sure it is allowed in the SIPP in the first place, you would be amazed at the number of enquiries we still get about putting residential property into a SIPP!
SIPP providers can take a different view on the same investment; much of it is down to how they interpret HMRC rules and what they feel comfortable with. The message here needs to be: if a SIPP provider says they won’t or can’t include a particular investment in their SIPP, shop about, see if someone else will.
Clearly there are some types of investment which cannot be placed in a SIPP, but it pays to shop about, this is of course where an IFA can help.
If you are in business think strategically
Whilst the primary aim of a pension is to provide an independent source of income later in life, along the way they can have significant additional benefits if you are in business.
- Do you own your business premises? If so could selling them to your SIPP release precious equity for use on other projects?
- Are you looking to buy business premises and finding it hard to get bank funding or put together a sufficiently large deposit? An existing pension fund could help here
Buying a property in your SIPP is not without its complications and we would always recommend you seek professional advice; however the benefits can be attractive.
Now, which SIPP?
So, the investments you wish to hold are more complex than may normally be the case, perhaps you want to buy some property and need bank funding, or you want to invest in a property partnership, hold gold directly or buy forestry. Whatever you want to buy you will need to firstly find a SIPP provider to take the investment and then ensure you are happy in terms of charges and service.
There are two ways to identify the right SIPP provider for your needs: do your own research or use an IFA.
Whilst there will undoubtedly be a cost attached to using an IFA, they do carry a benefit in terms of time saved, experience and also the fact that a number of SIPP providers will not accept business directly from a client, it has to be placed via an IFA.
Where does cost come into it?
As we said last month, once you have found a range of SIPP providers who are willing to accept the types of investments you want to buy it is only then that you should consider cost.
If you want your SIPP to buy a property directly you will certainly pay additional fees, however for other investments you may be surprised how little your fees rise. The table below gives some examples of the fees you might expect to pay for a new SIPP with a property purchase.
Talk to the providers, or get your IFA to do it, get a good grasp of all the costs you will pay for setting up the new SIPP, possibly transferring money in, buying the investment etc. Also be mindful of future costs, will they charge an annual amount per property for example or are the fees based on other factors.
Once you have a good knowledge of all the fees you will pay, use this to try and drive down cost, see just how much the SIPP providers want your business. As we have said investment flexibility and service are important, but so is cost, why pay more than you have to?
You can invest in a SIPP directly or via an IFA, just remember that some SIPPs do not accept business directly; you could therefore be limiting your market if you exclude these.
Decide what investments you want to buy, confirm that they are eligible for a SIPP, then shop around to produce a shortlist of SIPP providers you are comfortable with and only then start to drive down price.
Example Costings (Correct as at February 2011)
|Provider||SIPP Set up Costs||Property Purchase Costs, with borrowings|
|Rowanmoor Group plc||£800||£1,225|
SIPP Set up costs include only the initial charge and 1st years annual admin charge – no other fees for transfers etc included, which may be payable. Where providers have graduated charges dependent on size of property or fund value, highest costs have been used.
Property purchase costs assume one property purchased with a single SIPP arrangement and borrowings arranged. Costs include purchase and loan set up fees plus first year’s administration fees for property and loan. It does not include any legal fees or other professional fees which may be payable.
VAT is normally payable in addition to all the figures quoted above