Tuesday, 16 August 2016

Selecting Your DIY Pension Platform

Earlier this year I reviewed the process to select a diy online broker which mainly related to ISAs and dealing accounts. Most brokers who offer such platforms will also offer SIPPs however due to the nature of pensions, they can be a little more complex.

I thought it may therefore be worthwhile to take a look at the possibilities for those looking into a diy option for their online pension.


Some Considerations

The main aspects to consider at the start of the process are :

1. Value of portfolio

As with ISA providers, online brokers mainly divide into two categories, those that charge a percentage platform fee based on the value of your investments such as AJ Bell and Hargreaves Lansdown and those that charge a fixed annual/quarterly fee regardless of how much is held with them for example Halifax Share Dealing and Alliance Trust..

As a rough rule of thumb, if your portfolio is greater than say £60K to £70K then it will probably work out cheaper to look at the fixed fee providers and for those just starting out or with more modest pensions, the percentage fee may work out better. To some extent, it may depend upon the type of investments you intend to hold in the portfolio.

However, although costs are important they are not the only consideration. Customer service for example may be an important factor for many, for others, financial size/strength of the provider will be a consideration.

2. Will you be investing using mainly funds (unit trust/OEICs) or with shares, investment trusts or exchange traded funds (ETFs)?

With many brokers, the platform charges are similar but the dealing costs to buy/sell will vary and the charges on shares and inv. trusts/ETFs may be capped which can make a big difference with larger pension pots.

Some providers such as my broker AJ Bell charge a percentage platform fee - currently 0.20% (0.25% from 1st October) - for holding funds but will cap the charges for shares etc. at £100. Those with a portfolio of £50K in funds such as Vanguard LifeStrategy for example will pay £125 p.a. in platform costs but only £100 if invested in ETFs or investment trusts. On a portfolio of £200K the corresponding annual fees would be £500 and for ETFs, again £100.

There may be no charges for buying funds with some platforms however, all brokers will charge a transaction fee for buying & selling shares, investment trusts and ETFs - typically around £10.


3. Will it be a lump sum investment or are you drip feeding via regular monthly direct debit?

Most investors will probably be slowly building their pension pot over many years via regular monthly drip feeds via direct debits. For such people, it will clearly make sense to choose a broker who can offer a free (funds) or low cost regular investment option (shares, ETFs etc.).

As we have already seen above, some brokers make no charge for the purchase of funds (as opposed to shares etc.) which make these attractive, particularly where the monthly contributions are fairly modest. Many platforms offer a discount to their standard dealing charges of say £10 - maybe £1.50 or £2.00 for the regular monthly purchase of investments.

Where the investment is a larger lump sum, possibly due a transfer from another pension provider, it will obviously be more important to consider annual platform/admin charges, especially where no further monthly contributions will be made.

Combined Charges

It will be important to have a clear picture of both the platform charges and the cost of buying selling the investments as well as the cost of the investments themselves. For example, it may cost more initially for a one-off purchase of an investment but there may be lower ongoing platform costs.

Low cost index funds are becoming more popular with small investors. The ongoing charges for some are less than 0.10% which is incredibly good value but this can be negated by holding them in a sipp with percentage charges which apply up to say £250K. A similar product may be available as an ETF with a slightly higher ongoing charge but because the platform costs are capped, the combined costs will work out less than holding the lower cost index fund.

An extra 0.20% in broker platform charges may not seem much but on an typical sipp portfolio of around £50,000 it will be an extra £100 every year. On a larger portfolio of £200K the extra charges would be £400 every year.

Once you are fairly clear on the above points it should be easier to narrow down the best choices for the most suitable broker.

Some Other Considerations

1. Check out the costs for closing the account and transferring to another provider. It is common for providers to review their charges or other conditions from time to time. Typical fees are usually based on whether you wish to transfer your portfolio over without having to sell and then repurchase with the new broker and will be around £15 - £25 per line of stock. Obviously, if you hold many different investments, it could be very expensive to transfer out.

Some platforms also impose additional charges for transferring out as cash.

2. Although you may be at the start of the sipp building journey, be aware of the costs of taking benefits such as conversion to drawdown with your provider at a later stage. Also be aware that some providers currently do not offer benefits which will entail a move to another provider at a later stage.

3. Does the sipp provider offer the type of investment you wish to hold in your portfolio? Seems fairly obvious but some brokers such as Cavendish for example, will offer only a limited range of investment trusts etc.

4. If you are likely to hold shares and/or investment trusts, check the situation regarding re-investing of dividends - is there a facility for this to be done automatically and if so, is there a charge?

5. Be aware that tax credits will need to be manually invested from time to time.

6. Check if there are additional charges for telephone trades - probably unlikely that this will occur but some may be interested in investments such as PIBS for example which can only be purchased via a telephone trade.

7. Is it likely you will want to hold overseas listed investments? If so, make sure this option is available and check out any additional costs.

Comparison Sites

Comparing the best SIPP providers isn't simple. Which company will be best and cheapest for your journey over the coming 30 years will depend on how much and how often you invest. Some will be better for smaller pots, some better for free regular monthly drip feeding into funds. Others will be more appropriate for larger sums or for consolidating several smaller pots from other pension providers. There are no providers offering the best all round deal for small and large amounts alike.

There is therefore no single one-size-fits-all best sipp provider. The best one for any individual will be the one that ticks the most boxes according to that individuals specific situation and requirements.

Monevator has painstakingly created a comparison table covering most of the popular discount brokers and fund platforms. The table is mainly aimed at diy investors seeking a passive approach to running a portfolio using mainly index funds and ETFs.

Compare Fund Platforms is a spin-off from Candid Money run by Justin Modray. Select the ‘sipp’ button at the start then select the funds you wish to compare or may be interested in purchasing, confirm a few assumptions on period of investment and rate of growth (include the option of also holding shares and/or investment trusts also) and instantly see which broker currently offers the lowest cost.

It can be revealing to see the effect on investment returns of the various platform fees over a prolonged period.

Of course, you are not limited to just one broker. You can have more than one sipp and could use one to hold a lump sum transfer from another provider for example and a second sipp for your regular monthly contributions.

From April 2017, the new Lifetime ISAs will be introduced for younger investors and these may be more attractive/flexible than the traditional sipp.


Here is a random selection of some sipp providers to assist with research (this list is by no means comprehensive and other platforms are listed on the comparison sites above)

[N.B Prices/info will change over time and as I do not intend to regularly update this article please visit the platform provider if you are intending to start/transfer a sipp]

Fixed Flat Fee

Halifax Sharedealing - http://www.halifax.co.uk/sharedealing/our-accounts/sipp/sipp-charges/

Platform - £90 p.a. up to £50K,  £180 p.a. over £50K - flat fee
Dealing - £12.50 funds and shares etc.(£2 regular)
Drawdown - £180 p.a. to age 75 then £300 p.a.

Alliance Trust - http://www.alliancetrustsavings.co.uk/pensions/pension-charges-and-fees/

Platform - £180 p.a. flat fee
Dealing - £12.50 funds and shares etc.(£1.50 regular)
Drawdown - £255 p.a.

Iweb - www.iweb-sharedealing.co.uk

Platform - £90 p.a. up to £50K,  £180 p.a. over £50K - flat fee
Dealing - £5 funds and shares etc.
Drawdown - £180 p.a. to age 75 then £300 p.a.


Percentage

AJ Bell Youinvest - https://www.youinvest.co.uk/sipp/charges-and-rates (from 1/10/2016)

Platform - 0.25% on first £250K then 0.10% up to £1m (but capped at £100 p.a. for shares, trusts and ETFs)
Dealing - £1.50 for funds - £9.95 for shares, trusts and ETFs (£1.50 regular)
Drawdown - £100 p.a.

Hargreaves Lansdown - http://www.hl.co.uk/pensions/sipp

Platform - 0.45% on first £250K then 0.25% up to £1m (but capped at £200 p.a. for shares, trusts and ETFs)
Dealing - free for funds - £11.95 for shares etc (£1.50 regular but limited)
Drawdown - (no additional charges - same as platform)

Charles Stanley - https://www.charles-stanley-direct.co.uk/Our_Charges/

Platform - 0.25% (but capped at £150 for shares, trusts and ETFs and min. £20)
Admin - £100 p.a. + vat
Dealing - free for funds - £10 for shares etc
Drawdown - Take benefits £150 +vat; Payroll £50 +vat p.a.

Cavendish - www.cavendishonline.co.uk

Platform - 0.25% funds (limited range of ITs and ETFs)
Dealing - free for funds (0.1% for ITs and ETFs)
Drawdown - not available

Fidelity - https://www.fidelity.co.uk/investor/funds/fund-charge.page

Platform - £45 flat fee + 0.35% up to £250K, 0.20% on £250K+ (capped at £45 on limited range of ITs and ETFs)
Dealing - free for funds (0.1% for ITs and ETFs)
Drawdown - not available

Best Invest - http://www.bestinvest.co.uk/the-best-sipp/low-cost-sipp-charges

Platform - 0.3% on first £250K then 0.2% up to £1m
Dealing - free for funds - £7.50 for shares etc.
Drawdown - under £100K £100 +vat (over £100K no additional charges - same as platform)


6 comments:

  1. Great article, thank you. I'm just at the start of my investment career and I've chosen cavandish as my pf provider, with the article you have drawn my attention to their offering no drawdown. Does this mean in the future I would not be able to use them to take an income from the investment and if so at what stage or size of portfolio would I need to consider moving to another portal. Thanks for replies in advance.

    ReplyDelete
    Replies
    1. SS,

      You have a long way to go before you need to think about drawdown and Cavendish may well introduce benefits at some stage. But if not, when you are ready to take your tax-free lump sum and/or benefits such as income drawdown, you would need to transfer your pension pot to another provider who can provide these benefits.

      Currently there is no charge to transfer out from Cavendish so it should not be a big problem.

      I'm sure you will understand I cannot really comment on whether you should move and if so when - that is something only you can decide.

      Good luck with your investing journey!

      Delete
    2. Thanks for the quick reply and clarification,much appreciated.

      Delete
  2. An excellent summary, I think it covers everything. I'm happy to pay HL £200 to run my pension, and don't find it too restrictive that I can only use ETFs, not funds. I put the latter in I-web, ISA and unprotected, and got in there before their joining fee rose :-). I don't feel the need to have similar diversity patterns in SIPP/ISA, as its all the same money, but perhaps I should if I'll be withdrawing from them at different times.

    I think financial probity is very important, it is a really big egg to have in one basket, but with a DB pension, foreign pension and active work pension, I can't face having any more providers.

    ReplyDelete
    Replies
    1. vicarage,

      Yes, there seem to be many more low cost ETFs around compared to even 2 or 3 years back so most investors should be able to find a suitable alternative to funds.

      I wonder if Vanguard will launch an ETF version of the Lifestrategy range?

      Sounds like you are well diversified with your pension providers and ISA..you can always consolidate at a later time if you want everything in one place..good luck with it.

      Delete
  3. You don't mention Interactive Investor under 'Fixed Price' platforms? This is the platform I chose a couple of years ago and whilst it is fairly basic website so far it does the job and at a very keen price.

    ReplyDelete