The best Sipp for your retirement

by Ed Bowsher on 10 March 2011  |  9 comments
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Sipps can be a great way to save for your retirement. We highlight three of the best.

I’m a big fan of Sipps. Their full name is Self Invested Personal Pension and that name highlights one of the big advantages of the scheme. A Sipp gives you the power to manage your pension fund yourself – you can make your own investment decisions. What’s more, you normally won’t have to pay too much for the privilege either.

That said, Sipps aren’t for everyone. If you’re lucky enough to be a member of a defined benefit/final salary pension scheme, count your blessings. You probably don’t need to bother with a Sipp.

Or if you’re a member of a good occupational scheme where your employer makes regular contributions into your pension pot, I’d stick with that.

But I can think of plenty of scenarios where a Sipp makes sense. Here’s a few:

-          You have several old pensions from previous employers. You want to consolidate them in a Sipp and make your own decisions.

-          You’re self-employed.

-          Your pension pot is much larger than average and you’d like to invest in a wide range of assets including shares, bonds, commercial property, derivatives and gold. Even wine and vintage cars!

-          Your employer runs a ‘Group Sipp’ for its employees. In other words, your employer makes a contribution into your Sipp and you can decide where your money goes.

Now I should add that not all Sipps allow you to stick a 1915 Ford Roadster in your pension fund. If you want to go for the really exotic investments you need to invest in a ‘Full Sipp.’

There are plenty of providers who offer ‘Full Sipps’ and I think that many are reasonably priced given the service that they offer. The SuffolkLife MasterSIPP is one of the best and its set-up fee is just £300 plus VAT. What’s more, you won’t have to pay any transaction fees when you buy many funds and equities.

That said, you will have to pay an annual admin charge of £490 and there will be further fees when you buy more exotic investments such as property. There are exit charges as well.

Low cost Sipps

I suspect that most lovemoney.com readers won’t want or need a full Sipp, so a cheaper online Sipp makes more sense for them. You won’t be able to invest in vintage cars, but you could still build a diverse investment portfolio which includes shares, funds, bonds and cash.

Before I give the lowdown on three of my favourite low cost Sipps, I’ll give a bit of background. When you’re comparing Sipps, you’re really looking at two issues. What can you invest in? And what are the charges you’ll have to pay?

There are four possible elements to the charges:

-          Fees that go direct to the Sipp provider (eg Hargreaves Lansdown or Sippdeal). These could be a set-up fee or a management fee.

-          Transaction fees. When you buy or sell an investment, you may have to pay a fee to cover the dealing costs.

-          If you’re investing in funds, you’ll probably have to pay some fees to the fund management company that operates the fund (eg. Jupiter or Gartmore). Firstly, you may have to pay an initial charge when you make the investment. This could be as high as 5%. Secondly, you may have to pay an annual management charge of around 1.5%.

-          Exit charges.

Let’s now look at three of my favourite low-cost Sipps. Broadly speaking, they pretty much allow you to invest in all the same things, but the differences are more pronounced when it comes to charges:

Hargreaves Lansdown Vantage Sipp

This Sipp is especially attractive if you want to invest mainly in funds. That’s because you won’t be paying any management fees to Hargreaves Lansdown for money that’s invested in funds. You also won’t pay any transaction fees for dealing in funds.

But this isn’t the best Sipp if you plan to invest a lot in individual shares. That’s because Hargreaves Lansdown charges a 0.5% annual fee on any money invested in shares.

Sippdeal

If you want to focus on individual shares, then Sippdeal’s Sipp is probably the one to go for. Crucially, you won’t have to pay an annual management charge to Sippdeal for your investments in individual shares.

Alliance Trust Savings Sipp

Like Hargreaves Lansdown, Alliance Trust is strong for funds. Not only do you get a full rebate on a fund’s initial charge, you also normally get a partial rebate on the fund manager’s annual charge.

Alliance Trust also offers low dealing costs. If you pay in cash via a monthly direct debit, you’ll only have to pay a £1.50 transaction fee when you use your monthly cash to buy shares or a fund.

On the downside, you’ll normally have to pay a £125 annual charge to Alliance Trust.

I’ve only looked at three providers here, but I know that TD Waterhouse, James Hay and Fidelity also offer good low-cost Sipp products. Whichever provider you choose, I think Sipps are a great way to give you control over your pension.

More:  How to choose the right SIPP  |   Five top low cost SIPPs