Whether you have a SIPP or you’re thinking about starting one, there’s never been a better time to save money and increase flexibility
The Regulator Helps Expose The Real Cost Of SIPPs Enabling SIPP Holders To Save Money
It’s A Perfectly Reasonable Thing To Want A SIPP
Chances are you didn’t get where you are today by letting someone else make your investment decisions for you. So unless you’re a member of a ‘gold plated’ final salary defined benefit pension scheme, a pension scheme where you make the investment choices sounds like a great idea.
There are currently around 100 SIPP operators in the UK. Unfortunately, it's not that easy to run a quick online comparison to find the best provider, much like you might do with other financial transactions, like car insurance and life insurance.
Whilst it is possible to find some reasonable comparisons, it only works if you want to limit yourself to stockmarket investments. However, that part of the SIPP market is currently in a state of flux as SIPP operators jostle for position, forced by the Regulator, the Financial Conduct Authority, to declare their charges. This has been very good news, giving SIPP holders the opportunity to save money.
Now the hidden fees and administration costs being charged by the largest providers in the business are laid bare for all to see, there are a lot of disgruntled SIPP holders looking for a new SIPP operator.
Despite apparently offering a ‘free’ service, it seems some the best known names in the business have managed to extract charges of up to 1.3% per year, falling just a bit now to just 1.1% per year to help people save money. Incredibly, these 'free' pensions cost more than a low cost Stakeholder pension, which can cost up to 1% per year (although a Stakeholder pension can cost up to 1.5% per year in the first ten years).
People with larger SIPP funds running into six figures can often save money by plumping for a SIPP operator that charges a fixed annual fee, no matter how large their funds.
But What If You Want To Invest Outside The Stockmarket?
Like commercial property. Or high fixed interest loan notes and corporate bonds paying up to 15%, like you’ll find in the SIPP Investments area. Or lend money on crowdfunding platforms where you can earn in excess of 10% per year.
You need a full service SIPP that allows you to hold all types of loans and investments that are approved by HMRC as acceptable assets.
You’d have thought that as it has ‘self-invested’ on the label, you’d be allowed to invest as you wish. Sadly, it isn’t the case. The problem is that each SIPP operator has the right to choose what assets it allows in its SIPP.
Whilst there is a handful of long standing, well respected SIPP operators that will allow you to hold all sorts of investments, many SIPP operators choose to specialise. By way of example, there are those that only like commercial property, and others that focus on helping pension holders get money into their businesses. That’s all very well if you want to stick to those areas. But step outside in a bid to diversify your holdings and reduce your risk, and you might hear the words ‘computer says NO’.
If you’re determined to invest in those other areas, it could cost you a lot of money in charges to open up a second SIPP, or transfer all your funds to another SIPP operator.
How To Find The SIPP You Need
You have to "start with the end in mind".
It’s a phrase coined by Steven Covey in his book “The 7 Habits Of Highly Effective People”. To avoid making some costly mistakes with a SIPP, that phrase applies here too!
If you’re considering setting up a SIPP for the very first time, or you’ve discovered the SIPP operator you have already is charging you a fortune, or it won’t let you do what you want to do with your money, the conclusion is clear.
The first thing you must do is decide what sort of investments you want to hold now, and over the coming years. Once that's established, you’re ready to research the SIPP operators.
If your decision is to fully invest in stockmarket assets, that’s fine. But don’t be fooled into thinking you only need to check those providers that restrict your investment choices to the stockmarket. There are a number of full service SIPP operators that charge competitive fixed fees that will enable you to trade stockmarket investments online in exactly the same way as a restricted SIPP operator, often at a lower cost.
If you’re into diversification, then you will need to place your pension money with a full service SIPP operator. But you need to choose carefully, for currently, the Regulator is continuing its SIPP operator review it started last year, and which SIPPclub reported in an article entitled How The Regulator Is Restricting Choice.
At the end of February 2014, an FCA spokesman revealed its visits were to be completed in March, and that individual feedback would be given to SIPP operators, saying:
Where firms are not meeting our standards, in particular on due diligence, we are requesting firms to take what we would consider to be appropriate action. This could either be improving their procedures or ceasing an activity until they can meet the required standard. We have seen a number of firms which are not meeting our standards and this is disappointing given we have issued guidance on this area.
If you’ve decided to invest in a particular area, and your SIPP operator has been asked by the Regulator to stop doing that type of business, your plans will be scuppered.
Earlier this week, I learned that some SIPP operators have already faced such sanctions, so this isn’t an empty threat! Tread carefully, and do your investigations thoroughly before you sign on the SIPP operator’s dotted line.
Save Money By Keeping Your Options Open
As with everything to do with self-investment, it’s up to you to do your research with diligence. That’s not just finding a SIPP that permits you to do what you want to without restriction. It also includes you keeping track of the costs you pay your SIPP operator, and your adviser if you choose to employ one, particularly if you pay those fees as a percentage of your fund value. There so much competition right now, it’s relatively easy to reduce your outlay in both these areas by switching to fixed fee solutions.
Not only could you save money, you might also end with a more flexible SIPP, which will really will keep your options open. For one thing’s certain. Change happens. And when it does, the trick is to ensure it doesn’t cost you a fortune to take advantage of it.
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AJ Bell Is Often The Best Value SIPP For Stockmarket Assets
Over time, charges can wipe out a huge part of your fund. We like AJ Bell because there are no set-up costs. If you hold passive funds, which is our preference, or shares, investment trusts, EFTs, gilts or bonds, you pay one small fixed fee no matter how large your fund. And when you come to draw your benefits either as occasional drawdown or UFPLS payments, there's a small charge for the whole year no matter how many times you access your money (many SIPP and SSAS providers charge more than this for each payment). However, you should always compare charges in detail, because AJ Bell could be more expensive than other providers, depending on the type of stockmarket assets you hold.
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As SIPPclub neither advises on, nor arranges, nor recommends specific investments or strategies, we're unable to say whether a SIPP or SSAS or any investment within it is right for you. Ultimately, it’s your money and your decision, and you should only proceed once you're satisfied you've undertaken sufficient due diligence. If you need advice, you should speak to your trusted adviser, or you could find a local adviser from Unbiased.co.uk. Alternatively, we'd be pleased to introduce to a suitably qualified independent financial adviser.
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