Manage your own pension: how SIPPs work, cheapest fees and what you can invest in

A Self-Invested Personal Pension (SIPP) gives you the power to manage your pension fund yourself.

It works like a personal pension, so you’ll get the same tax relief on contributions, but you will have more flexibility with the investments you can choose.

Normally with a personal pension, your investment choices can be limited, but with a SIPP you can invest almost anywhere you like.

There are two types of SIPP you could go for, which are a ‘full’ or ‘low-cost’ SIPP.

Full SIPP

If you get advice on your SIPP investments, this is known as a full SIPP.

This type of SIPP gives you the widest choice of investments.

But you’ll typically need to pay far higher charges, including a set-up fee, annual management charge and trading fees. There are no free lunches in this world!

Low-cost SIPP

With a low-cost SIPP, you don’t get any advice so you’re completely responsible for all decision making.

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.

How to invest in property via your SIPP

You can hold a variety of different types of investments in a SIPP, including:

• Unit trusts;
• Investment trusts;
• Government securities;
• Insurance company funds;
• Some National Savings and Investments products;
• Deposit accounts with banks and building societies;
• Commercial property (such as offices, shops or warehouses);
• Individual stocks and shares quoted on a recognised UK or overseas stock exchange.

This isn’t an exhaustive list; different SIPP providers will offer different investment choices.

Residential property can’t be held directly in a SIPP, but some can be held through certain types of collective investments, like Real Estate Investment Trusts (REITs).

However, not all SIPP providers will accept this type of investment.

When you’re comparing SIPPs, you need to watch out for what charges and fees you will have to pay, as well as what you can invest in.

Here are the main charges to watch out for:

Set-up fee – this a one-off charge you will need to pay for setting up a SIPP.

Admin/platform fee – this is a fee you pay to the online service that administers your investments.

Annual management charge – this is an ongoing cost paid to a fund manager for managing your investments.

Dealing/transaction charges - when you buy or sell an investment, you may have to pay a fee to cover the dealing costs.

Exit/transfer fees – when you move money in or out of a SIPP, or close it down, you may be charged a fee.

Income drawdown charges – if you want to start drawing money from your SIPP, there may be a charge. You may have to pay for the set up and ongoing charges.

Vanguard launches ‘lowest cost’ SIPP: what’s the catch?

There are now so many different SIPP providers on the market that it can be a little bewildering for pension savers to work out precisely which they should use, with all sorts of differences between them in terms of the information provided to assist savers and the fees charged.

To try to make sense of this, consumer champion Which? has polled more than a thousand of its members on their SIPP providers, as well as scoring firms on the fees they charge across seven different pot sizes. 

Which? named three firms as ‘recommended providers’ having scored more than 70% overall.

Fidelity took top spot with an excellent overall score of 75%.

It won praise from its users for being “reliable, trustworthy and great value”, while others praised the quality of investment data it provides. It racked up ratings of at least four out of five in each and every category covered by the survey.

It’s important to note that it’s certainly not the cheapest option around though.

With a pot of £25,000 for example, you are looking at an annual fee of £88 ‒ while that’s dramatically lower than the £240 charged by rival providers, it’s more than double the fee you’d face investing with another recommended provider, Vanguard.

Vanguard took a share of second spot, with a score of 72%. 

It's worth noting that Vanguard only entered the SIPP market in February last year. It has made an immediate impact by offering a stripped-down and simple proposition, though it’s important to highlight that a Vanguard SIPP only allows you to invest in its own range of funds ‒ you can’t put money into stocks, shares or investment trusts.

Also sharing second spot was AJ Bell, with an overall score of 72%.

At the other end of the spectrum, Aegon managed a score of just 59%, including a poor two-star rating for investment information. Halifax fared only a little better on 60%, though it’s important to highlight that its charging structure means it’s the cheapest option for those with pots in excess of £250,000.

The difference in costs charged by SIPP providers can be significant.

The analysis by Which? found that managing a £100,000 pot yourself could see fees ranging from £150 to a whopping £450 a year. 

This becomes even more pronounced for bigger pots ‒ switching from the most to the least expensive SIPP with a £500,000 pot would save you more than £1,500 a year.

Here’s how the various providers compare when it comes to fees, looking solely at non-advised SIPPs, according to Which?

Provider	Costs on £25,000 pot	Costs on £50,000 pot	Costs on £100,000 pot	Costs on £250,000 pot	Costs on £500,000 pot
AJ Bell YouInvest	£63	£125	£250	£625	£875
Aviva	£100	£200	£375	£900	£1,525
Barclays Smart Investor	£200	£250	£350	£650	£1,150
Bestinvest	£195	£270	£420	£870	£1,370
Charles Stanley Direct	£208	£175	£350	£875	£1,375
Close Brothers	£63	£125	£250	£625	£1,250
Fidelity	£88	£175	£350	£500	£1,000
Halifax Share Dealing	£90	£90	£180	£180	£180
Hargreaves Lansdown	£113	£225	£450	£1,125	£1,750
Interactive Investor	£240	£240	£240	£240	£240
Vanguard	£38	£75	£150	£375	£375

SIPPs aren’t for everyone. They only really suit those who are comfortable with investing and are willing to do some research.

If you’re lucky enough to be a member of a defined benefit/final salary pension scheme, count your blessings as 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, you might be able to get by without a SIPP.

But there’s nothing to stop you having both.

There are plenty of scenarios where a SIPP makes sense. Here’s a few:

• You have several old pensions from previous employers, but 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, gold, 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.

If you want to learn more about SIPPS, or have other retirement questions, read our comprehensive guide to pensions.