Hargreaves Lansdown is hitting my pension

I’ve written many times that I think it’s really important that people should save for their retirements. Here is one example.

So I’ve always been a big fan of lovemoney.com’s pension scheme for its employees. The scheme is a Group Sipp operated by Hargreaves Lansdown.

The great thing about the scheme is that offers lots of investment choice. As a result I’ve got a wide range of different investments in my Sipp. These include:

-          HSBC FTSE All Share Index

-          HSBC American Index

-          2 actively managed investment trusts. One invests in the UK companies, one in emerging markets 

-          2 of the largest companies in the FTSE 100 index 

-          1 of the largest companies on the US stock market 

-          3 smaller companies on the London market 

I accept that some of my investment decisions haven’t followed the conventional wisdom and, who know, I may regret them in ten years’ time. But at least I’ve been given the freedom to make my own choices. That kind of freedom would not be on offer in many workplace pension schemes.

The other big plus point is that Hargreaves Lansdown charges low fees. So there are no charges for setting up the Sipp or for contributions. Hargreaves also doesn’t charge an annual management fee for more than 2400 funds.

Admittedly, I do have to pay a 0.5% annual charge to Hargreaves for my investments in shares and investment trusts.  But when it comes to my two HSBC funds, I don’t have to pay any annual charge to Hargreaves, just a small charge to HSBC.

In fact, the overall charge I’m paying for the HSBC funds is super-low at 0.27%. That’s because both of these funds are index tracker funds that don’t employ expensive fund managers. Instead they just buy all the shares in a particular index.

Sadly, however, this is set to change. Citywire has spotted that from December 31st, Hargreaves Lansdown will charge its own extra fee for HSBC tracker funds. This will be a ‘Platform fee’ of £2 a month or £24 a year.  This charge will also be applied to most other tracker funds and will dramatically increase costs for many investors.

So why is Hargreaves doing this?

The main reason is that more people are investing in tracker funds.

Hargreaves has built its business around actively managed funds where a highly-paid fund manager picks individual shares and hopes to beat the market. Fund management companies often levy an annual management charge for active funds that is as high as 1.5%. Hargreaves then gets a cut if people invest in the fund via the Hargreaves site.

So Hargreaves can make good money from actively managed funds whilst not having to levy its own charge. But when it comes to index trackers, Hargreaves either gets a very small fee from the fund management company or no fee at all.

As index trackers have become more popular,  Hargreaves has decided that it has introduce its own charge. In fairness, Hargreaves says that the new charge will enable it to offer much more information about tracker funds on its website, but I suspect that is just window dressing.

And anyway, given a choice between more information accompanied by a platform fee, or no information with no platform fee, I’d go for the cheapest option every time.

I’m saddened that Hargreaves is introducing this ‘platform fee’ especially since it will hit people with smaller pension pots the hardest. If you’ve invested £1000 in an HSBC tracker fund, the £24 platform fee will effectively be a 2.4% annual charge. But if you’ve invested £10,000 in an HSBC tracker, the platform fee is equivalent to a 0.24% annual charge.

It will be interesting to see if the other major Sipp providers adopt the same policy sooner or later. I fear that they will. For many of us, trackers are about to become a bit more expensive.

More:  Quality free advice on your pension