Cheaper pensions as Sipps price war erupts
Wednesday, 11 April 2007 12:00
The cost of setting up self-invested personal pensions (Sipps) has dropped 13 per cent in the last year as providers compete to secure your business.
That is according to new research from Defaqto showing "downward pressure" on charges such as administration fees and investment transaction fees on Sipps will continue as clients and advisers focus on value for money.
Sipps are a way of saving for retirement that put you in control of your investments.
They benefit from the same tax incentives as standard pension savings plans, but offer a greater flexibility on what can be invested in.
What is more, Sipps can be managed by the saver - either online or by more traditional methods - allowing you to switch in and out of investments and have access to up-to-the-minute valuations on your pension fund.
"Sipp providers have historically not been under much pressure to reduce charges in what was perceived to be a premium service industry," said Matt Ward, Defaqto head of pensions and wealth management.
"Now that the tide has turned every penny counts and value for money, from low-cost to premium Sipps, needs to be proven."
The Sipps market has been booming since April last year, when the rules on what could be invested in were relaxed (full story), and this boom has led to competition among providers.
"More providers will be seeking fee structures which balance the base administration duties with the level and complexity of the investment transactions within the Sipp," Mr Ward said.
"This could lead to more direct links being made between the administration and transaction fees."
Average set-up fees for initial investments of £50,000 have fallen from £306.23 last year to £266.57 now, Defaqto calculates, and for £100,000 investments from £299.74 to £261.73. For initial investments of £200,000 and above the average set-up fee is now £255.70.
Additionally, more than one Sipp provider in four now does not charge a set-up fee while other providers are offering discounts if clients use panel funds or fund supermarkets.
Defaqto also highlights the way fees are collected can also make a difference to value for money.
Investors benefit the most from paying fees annually in arrears, the company points out, with clients also advised to look for capped admin fees.
Regular traders are advised to look into transaction fees as well - the Defaqto report highlights a risk of double charging where the organisation making the trade levies a fee while the organisation recording the value also charges.
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