With more than 100 firms offering 'Self-Invested Personal Pensions' (SIPP), it's tricky to know which SIPP provider is right for you
Working out which SIPP provider is best for you isn't easy
There's no right or wrong answer to which SIPP provider will give you the best value for your money. That's because in addition to there being many SIPP providers, most of them offer more than one SIPP. And that means you'll face a complex job deciphering the myriad of charges and the seemingly endless investment choices on offer.
So which SIPP provider will best suit your aims?
To conclude which SIPP provider is likely to deliver you with the optimum arrangement for your requirements, you first need to answer these three primary questions:
- How much will your SIPP charges be, both to set up the pension, and on an annual basis?
- Does the degree of service on offer match your particular needs?
- Is the SIPP provider financially robust enough to keep your money safe?
Generally speaking, the overall charge for running a SIPP hasn't changed much in recent years. However, SIPP providers have applied different levels of charges to the various features within the SIPP. Knowing which SIPP provider is levying which charge for each aspect of its service is vital to ensure you don't end up paying more than you need, depending on how your SIPP money is invested.
Fund rebates can play a big part in working out which SIPP provider will scrape away a greater proportion of your money. It's necessary to do your research thoroughly, establishing which funds come with rebates and which SIPP provider can give you access to the largest of these rebates. As a rule of thumb, the cheapest funds such as index trackers do not come with rebates, as the fund charges are too low to justify a further reduction in the commission. It's necessary to check which SIPP provider has access to rebates and which funds qualify for them. That said, in the post-RDR world, from 2013, commissions and rebates may disappear altogether, although you may still be eligible to them on funds you've held for a while.
Two questions to establish which SIPP provider is worth considering
1. Which SIPP provider should I avoid?
Avoid financial insecurity
Avoid financial insecurity
In choosing which SIPP provider to entrust your money, you need to have reassurance your money is being looked after by a company that's financially secure. Currently, the Financial Conduct Authority requires a SIPP provider to have a minimum capital requirement of six weeks, although this will be substantially increased in 2013. That's because the regulator wants to ensure SIPP providers don't put at risk the money they're looking after on behalf of their clients.
Which SIPP provider to select is not just its ability to cope financially if some of the investments it permits within its SIPP go wrong. It's also about the effect it can have on the charges you pay, for if a financially weak provider without a capital requirement well ahead of the minimum suffers poor investments or loses money altogether, it's likely your charges could rise as a consequence. And that will affect the ultimate return on your fund.
When it comes to selecting which SIPP provider to look after your money, always start with the most financially secure and the highest capital requirement.
Avoid undesirable risk
As a rule of thumb, when you're considering which SIPP provider is right for you, you should choose a firm where basic SIPPs are at the heart of the business. That's not to say that firms offering high risk alternative investments are to be avoided. Quite often, these investments can add significantly to the overall growth of your fund, though it's all about the risk/reward ratio you're will to accept.
To discover which SIPP provider is likely to be right for you is as much about knowing what level of risk you're prepared to take with your money, then matching it to your shortlist of SIPP providers.
To help you minimise your risk, here are five helpful pointers...
- Choose a SIPP where the average holding is similar to your fund size
- Make sure the SIPP services on offer meet your needs
- Check out the financial strength of the SIPP provider before investing
- Be very vigilant when considering SIPPs that are new to the market
- Do your homework on fund rebates as they can make a significant difference
2. Which SIPP provider is right for me?
Variations in charging structures mean that some types of investor profile will be more appropriate to some SIPPs compared to others. As time passes, the charges will reduce your fund size so you must ensure you're in a SIPP that's most relevant for you. Choosing the wrong SIPP provider could cost you hundreds or even thousands of pounds of unnecessary fees.
Five stockmarket investor profiles to help you decide which SIPP provider is right for you
By way of a guide to help you choose which SIPP provider is likely to be best for you, below are listed the most common profiles of investor found in SIPPs. Pick the one that matches you best, and when you're doing your research online and offline to establish which SIPP provider is going to give you the best value for your money, bear your profile in mind, to help you arrive at the right decision.
- You're a fund investor who selects funds based on own research and frequent reviews of your holdings
- You're a day-trader who buys and sells shares several times in a day
- You're a stock picker who buys and sells approximately 10 times or fewer each month, and much less frequently than day-traders
- You're a stockmarket investor who buys shares to hold for the long term, trading maybe as little as once or twice a year
- You buy both stockmarket funds and shares, mostly to hold them for the long term, trading roughly 10 times per year
Consider other opportunity areas when choosing which SIPP provider is appropriate for you
Whilst a large proportion of the money currently held in SIPPs is invested in the stockmarket, don't forget to include the other areas in which your SIPP could participate.
These include the whole range of packaged investments that provide significant opportunities for very high returns. And of course, with the rise in popularity of crowdfunding through places like Funding Circle and Thincats, don't forget you could become a lender too, by granting loans from your SIPPs for a very wide range of purposes.
Which SIPP provider is right for you: a final thought
By definition, a SIPP is 'self-invested'. And a big part of making your money grow is to ensure you've picked which SIPP provider is right for you. There are no shortcuts. And you shouldn't leave it to others. It's your SIPP and the onus is on you to decide which SIPP provider will do you proud. Above all, for the healthiest retirement, put in sufficient time to select which SIPP provider is going to deliver you the best result in the long run.
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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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