A new low-cost Sipp from Interactive Investor

Savers with accounts of all sizes could benefit from lower fixed fees in this new low-cost Sipp from Interactive Investor.

Interactive Investor’s new low-cost pension plan could kickstart a price war in the sector. The investment platform is launching Pension Builder, a new self-invested personal pension (Sipp) for which savers will pay a flat fee of £12.99 a month, however much their fund is worth.

Flat fees tend to work out better value than percentage-based charges on larger pension funds. But Interactive Investor’s fee is low enough to be competitive for smaller funds, too. Analysis from Compare the Platform suggests that on a pension fund of £50,000, only Fidelity Personal Investing and Vanguard would work out cheaper – though the latter offers a more limited choice of underlying investments. On pension funds of £100,000 or more, Interactive Investor moves into the lead.

Interactive Investor’s new pension is designed to appeal both to savers just beginning with pensions and to those transferring from rival platforms. For the latter there is an opportunity to save money straight away, while for first-time pension savers, the £12.99 monthly fee will work out more expensive than some plans in the early years, before saving money later on.

Game changers

The launch exemplifies how investment platforms have changed the game for savers opening individual plans rather than (or as well as) contributing to a work-based pension scheme. Most platforms offer access to the same range of underlying investments – basically any collective investment fund, as well as direct equities – and functionality such as research and planning tools. What you’re looking for is the cheapest deal for your level of savings.

Missing out on the best pricing can have a large impact on your pension’s value. Each pound paid in charges is a pound you can’t invest or earn compound interest on.

Research from analyst Lang Cat, based on a 35-year-old with a £100,000 pension pot who invests £10,000 a year for 30 years and earns an annual return of 5%, suggests the cheapest plan today would deliver a final pension value of £1,191,737. At more expensive providers, the same saver would end up with up to £53,000 less due to charges.

Making comparisons between platforms is not straightforward. They charge in different ways – some favour flat cash fees while others charge a percentage fee. These platform fees are not the only charges to consider. There will also be charges to pay when you make new investments or change your portfolio, and for other services. Like many plans, Interactive Investor charges for things such as dividend reinvestment.

Comparison sites such as Compare the Platform or Money to the Masses allow you to make comparisons according to your circumstances – how much your pension fund is worth and how you plan to invest, for example. This should give you a better idea of the best deal for you, instead of just headline charges.

Nevertheless, Interactive Investor’s new launch is a welcome addition to the pensions marketplace, providing stiff competition to the likes of AJ Bell, Fidelity and Vanguard. It should also give savers pause for thought. Alongside the launch, Interactive Investor consumer research found only 12% of savers look carefully at pension charges. The rest are at risk of blowing an unnecessarily large hole in their pension funds.

Recommended

The end of cheap money hits the markets
Stockmarkets

The end of cheap money hits the markets

Markets have swooned as central banks raise interest rates, leaving the era of cheap money behind.
28 Sep 2022
How the end of cheap money could spark a house price crash
House prices

How the end of cheap money could spark a house price crash

Rock bottom interest rates drove property prices to unaffordable levels. But with rates set to climb and cheap money off the table, we could see house…
28 Sep 2022
Hundreds of mortgage products withdrawn as interest rates surge
Mortgages

Hundreds of mortgage products withdrawn as interest rates surge

Hundreds of mortgage products have been withdrawn after sterling crashed to the lowest levels in decades against the dollar and the Bank of England sa…
28 Sep 2022
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

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