Pensions: Vanguard sparks a Sipp price war

Fund giant Vanguard is poised to shake up the Sipp market with the cheapest offering on record.

Crowd of shoppers peering through closed glass doors © Getty Images

Falling costs are about to spur interest in Sipps

Crowd of shoppers peering through closed glass doors © Getty Images

Next year Vanguard, the world's second-largest fund manager, is launching Britain's cheapest private pension to date, "throwing down the gauntlet to its competitors and fuelling expectations of a price war", says Emma Agyemang in the Financial Times. The self-invested personal pension (Sipp) will have an annual administration charge of 0.15%, capped at £375. That is far below the industry average of 0.35%, says independent analyst Platforum. There will also be no additional costs for exit fees, valuation statements or transfers.

Vanguard says the Sipp will initially only be available to people who are building up their retirement savings, not those that have already started drawing on them. A pension drawdown service is expected to launch in the next tax year. Someone putting the full £40,000 annual pension allowance into the Vanguard Sipp would pay £172 a year in charges. The same amount in a Vanguard fund held in the most expensive platform's Sipp would cost up to £400 a year.

"Compounded over decades of pension saving, these fees can add up," says Louise Cooper in The Sunday Times. A 43-year-old investing £40,000 for the next 25 years would save almost £10,000 with Vanguard's Target Retirement fund if invested with Vanguard's Sipp instead of a higher-cost platform.

Two years ago Vanguard introduced an Isa and investment platform "credited with starting a price war that has forced [rivals] to push down their costs", says Cooper. "The Sipp, which promises to let savers sign up in just ten minutes, could shake up the market again by forcing another reduction in costs."

Vanguard's funds are cheaper too

There's more good news. Vanguard has some of the lowest fund fees in the industry. A typical Vanguard fund comes with an average fee of 0.2%. Hargreaves Lansdown, the biggest investment platform, charges an average fund fee of 0.94%. Note too that the account-fee cap applies across all the products you hold with Vanguard, whether that's a Sipp, Isa, or a general account.

The drawback to the Vanguard Sipp is the choice of funds. "It only offers a limited own-brand selection," notes Jayna Rana on This is Money. Hargreaves Lansdown charges more a 0.45% management fee plus fund fees and some dealing charges but offers a full range of funds, investment trusts and UK and international shares.

Some investors will pay more in order to get access to a far wider choice of investments. But the success of Vanguard's Isa shows that many will opt for a limited selection in return for low and clear charges. "Most pensions cost more and [have] complicated fee models," Holly Mackay, founder of Boring Money, told the Financial Times. "This one is cheap and simple... unusual... in financial services."

Recommended

What changes to the pensions charge cap mean for you
Pensions

What changes to the pensions charge cap mean for you

The government could raise the pensions charge cap – the amount you can be charged in your workplace's default pension fund. Saloni Sardana explains w…
27 Sep 2022
Downsizing or equity release: which is best?
Personal finance

Downsizing or equity release: which is best?

Downsizing – moving to a smaller home in later life – is far cheaper than an equity-release plan. David Prosser crunches the numbers.
13 Sep 2022
How inflation will hit your pension savings
Pensions

How inflation will hit your pension savings

Many pension schemes that offer protection from price rises aren’t as good as they seem, says David Prosser.
5 Sep 2022
Should I use a workplace pension or a SIPP?
Pensions

Should I use a workplace pension or a SIPP?

Workplace pensions and SIPPs both have attractive qualities, but which one will produce the best returns of investors?
30 Aug 2022

Most Popular

Beating inflation takes more luck than skill – but are we about to get lucky?
Inflation

Beating inflation takes more luck than skill – but are we about to get lucky?

The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank…
26 Sep 2022
Earn 4.1% from the best savings accounts
Savings

Earn 4.1% from the best savings accounts

With inflation topping 10%, your savings won't keep pace with the rising cost of living. But you can at least slow the rate at which your money is los…
27 Sep 2022
The pick of this year's best-performing investment trusts
Investment trusts

The pick of this year's best-performing investment trusts

Market conditions haven’t been easy, but these investment trusts have delivered strong growth, says David Stevenson.
23 Sep 2022