If you simply need a SIPP (Self Invested Personal Pension) to begin throwing your savings into, here's my guide to which are the best.
Most of the do-it-yourself investment platforms offer a SIPP account, but the fee structures vary. Things also get more complex if you are pricing up a platform to also host your ISA or GIA, so for simplicity today I'm purely looking at SIPPs.
A SIPP is the best place for most of us to begin building our financial freedom fund. The only exceptions are really if you plan a very early retirement, where you'd need some funds accessible in an ISA to give you a source of income before you reach pension access age at around 57 or 58, or if your income is for some reason unpensionable, for instance if it comes from rents from properties. Only earned income from employment, or self-employment, is valid to go into a pension and get the tax breaks. Or perhaps you are lucky enough to have a solid Defined Benefit pension at work, and so you only want to work on funding an earlier retirement.
InvestEngine
The cheapest is InvestEngine, who offer a free SIPP, but they do have some shortcomings. Their product is very restricted. They don't allow you to transfer other pensions into your account (except from Vanguard). There's no helpline to phone. They don't support employer pension contributions. They don't offer drawdown in retirement "yet" - you would have to transfer somewhere else at that point.
There is also the fact of them being a loss-making startup, which some people find concerning. They are regulated, so your money is safe in that respect - if they exited the market then the regulator would pass your account to another platform, and you would not lose your investments. But there is some scepticism about how long they will continue to lose money doing this, and whether this will lead to them selling their client book to someone else, or introducing fees.
For these reasons I'm going to exclude IE from my later price analysis. They're the cheapest, if you can handle their shortcomings.
The Middle Field
After this we reach a general crop of platforms, the middle field. Fidelity, AJBell, Hargeaves Lansdown. These are all okay, but not great. Their fees tend to be a percentage of the pot, and some charge for trades. These can often work out the cheapest choice with a small pot and where you need to accept employer contributions.
Vanguard
Vanguard are well liked as the home of index fund investing. In the 1970s their founder Jack Bogle invented the index tracker fund, and in the USA Vanguard is run as a mutual entity, with no-one taking a profit, just run for the benefit of the members. (The UK arm isn't a mutual, it's just a subsidiary of that US home office.) Their fees are low - and between about £10k and £100k invested they may well be the cheapest option.
But Vanguard have their oddities, including some serious shortcomings. They don't accept regular employer contributions to pensions - only for directors of the company with payment by company debit card. On transfers, they are consistently the slowest platform by some way. And for personal contributions they are fussy about banks, with some clients reporting that they won't accept contributions from some challenger banks despite these banks being UK registered.
Vanguard's fee structure is 0.15% of your investment pot per year, with a minimum charge of £4 per month and a cap of £375 per year. This means that between about £30k and £100k they are often the cheapest mainstream operator. That's provided they're an option for you because of the payments issues.
Vanguard's other oddity is that they only offer their own funds. Which may be fine for you.
Interactive Investor
For larger pots, Interactive Investor become cheaper than Vanguard. In some situations they may be cheapest at lower levels than that, too, such as if you only use a SIPP. This is because, like the others, they have a complicated charging structure, in this case based on which accounts you hold as well as some introductory tiers like their Pension Essentials product which is £5.99 for up to £50k, whereupon you switch to their full SIPP at £12.99.
As an industry, these guys all need to simplify their fees!
II accept employer contributions, company contributions, and personal contributions. They are full service with a phone helpline. They offer a full range of investments. They have "free regular investing" where you can set up automated funding of the account together with automated buys of popular funds and UK shares, which are done in a batch once a month. The settings for this are quite sophisticated. You can give it a priority list of things to buy, complete with amounts, and it will happily cope with you asking to buy more than the money in your account - it will just fill what it can from the priority list. Lastly, it will allow you to change these settings as frequently as you like, and set up extra amounts for this month only. I find that this covers almost everything I want to do. I've been with II for about 15 years and I'm quite a fan.
Mathing It Up
For this analysis I'm going to look at the costs and price break-points between the different platforms. Here are their fees to begin with:
AJBell
0.25% platform fee per year
£1.50 fund dealing fee / £5 ETF dealing fee
HL
0.45% platform fee per year
No fund dealing fee / £11.95 ETF dealing fee
Fidelity
0.35% platform fee per year
£7.50 dealing fee - online / £1.50 dealing fee - regular savings plan
Vanguard
0.15% platform fee per year / Minimum £4pm fee = £48 per year / Fee cap of £375 per year
No dealing fee
II
£71.78 platform fee per year for up to £50,000 invested.
£155.88 platform fee per year above £50k.
Free regular investing once per month / Additional dealing fee £3.99
As you can see, the combination of annual fees and fees-per-trade means that the maths will depend upon how often you trade. For simplicity I'm going to model the costs for an investor who contributes once per month on a regular basis, and who uses the cheapest type of fund available on that platform, either regular fund or ETF.
At the bottom end, AJBell initially look cheap but twelve of their £1.50 dealing fees adds up. It means that for a beginner, Hargreaves Lansdown are cheapest.
HL win for £0 - £9,000 (fees at £9,000 = £40.5)
AJBell win for £9,001 - £19,200 (fees at £9,001 = £40.50)(fees at £19,200 = £48)
Vanguard win for £19,201 - £47,852 (fees at 32000 or under = £48)(fees at 47,853 = £71.78)
II win for £47,853 - £49,999 (fees at 47,853 = £71.78)(fees at 49,999 = £71.78)*
*I don't think it's worth moving to II during this short window.
Vanguard win for £50,000 - £103,919 (fees at 50,000 = £75)(fees at 103,919 = £155.88)
II win for £103,920+ (fees at 103,920= £155.88)
Because of II's two tiers of SIPP pricing, they appear and then disappear.
Bear in mind that because of II's "first year free" referral offer, it is still worth moving to them in the year before you reach that £103,920 figure.
Exclude Vanguard?
We excluded InvestEngine from the price comparison, because of their limitations. I think there will be lots of people for whom Vanguard are also unsuitable, whether that's because they need to accept employer contributions, or they bank with someone Vanguard dislikes.
If we were to exclude Vanguard, we're left with a window where you'd need to choose between AJBell and II. The revised leaderboard would look like this:
HL win for £0 = £9000
AJBell win for £9001 - £28,712
II win for £28,713 - £49,999
AJBell win for £50,000 to £62,351
II win for £62,352+
Referral Deals
I would never suggest going with a platform just for the referral offers they run, but if you're going with a platform anyway, then it makes sense to avail yourself of their deals.
Of the platforms mentioned above, there are currently referral deals for InvestEngine and Interactive Investor.
With InvestEngine there's a signup bonus of a randomly selected amount between £20 and £100, for both referrer and referee. If you want to use mine, use this link.
With Interactive Investor you get your first year free of platform fees, worth about £155 to you with SIPP-only or about £263 if you have other accounts as well, and the referrer gets a £200 credit to their account. If you want to use mine, use this link.
I'm sure with all of these offers there are details and qualifying criteria, so do look through their offer properly to check it works for you. And in fairness, if someone has helped you a lot and they have a code, it's a nice way to say thank-you to use their code, if you both benefit.
Want to read more of my ideas? I have a new book out - Build Your Retirement, 5 ways to improve your wealth in retirement. Or other books here.
No comments:
Post a Comment
Leave a comment