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How SIPP platform fees and unclaimed tax relief could cost you tens of thousands in retirement
More than five million people hold Self-Invested Personal Pensions (SIPPs) with a total of £567 billion inside, according to the Financial Conduct Authority. How can savers get the best value for money when choosing one?
Savers with Self-Invested Personal Pensions (SIPPs) could boost their retirement pots by tens of thousands of pounds by ditching platforms with costly platform fees and claiming tax relief, according to new analysis.
Research by investment platform InvestEngine suggests a basic rate taxpayer with a SIPP putting away £500 a month for 30 years could end up £18,000 worse off by choosing a platform with a 0.25% annual fee compared to a fee-free platform.
The same person choosing a platform with a 0.45% annual fee would be £32,000 worse off compared to a fee-free platform, the analysis suggests.
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Basic rate taxpayers with SIPPs have tax relief added automatically, but higher and additional rate taxpayers have to claim any extra relief on top, something many forget to do.
This is because tax relief on SIPPs is applied using the ‘relief at source’ rather than the ‘net pay’ method.
InvestEngine’s analysis found a higher rate taxpayer putting £500 a month in a SIPP for 30 years could end up £139,000 worse off based on choosing a platform with a 0.45% annual fee over one with no annual fee and by not claiming higher rate pension tax relief.
Bob Tronson, head of pensions at InvestEngine, said: “Pensions are a long-term product, which means small changes today will deliver surprisingly large improvements over time.
“A fraction of a percentage point in annual fees over decades can cost tens of thousands of pounds. Higher rate taxpayers not claiming the extra tax relief they're entitled to will miss out on even more.”
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Illustrative pension value after 30 years
Annual platform fee
Basic rate taxpayer [contributions]
Basic rate taxpayer [contributions]
Higher rate taxpayer [contributions plus tax relief claimed and reinvested]
Higher rate taxpayer [contributions plus tax relief claimed and reinvested]
Row 1 - Cell 0
£300/month
£500/month
£300/month
£500/month
0%
£265,563
£410,241
£329,789
£517,286
0.25%
£253,341
£392,140
£253,337
£392,140
0.45%
£244,048
£378,338
£244,030
£378,338
Source: InvestEngine, based on an initial pension value of £20,000 and annual investment growth of 5%
How do SIPP platform fees compare?
When considering what SIPP to get, there are typically a number of fees to consider. The account fee, sometimes known as platform fee, is one of the most important.
MoneyWeek analysed platform fees across some of the biggest providers to see how they compared.
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Investment platforms’ SIPP account fees
Investment platform
Platform fee
Hargreaves Lansdown
0.35% (up to £250,000), 0.25% (£250,000 - £1 million), 0.10% (£1 million - £2 million), no charge on anything over £2 million
ii
Doesn't charge an annual fee. Cheapest ‘core’ monthly package is £5.99
AJ Bell
0.25% (maximum £10 a month) for portfolios with shares. 0.25% on first £0 to £250,000 for portfolios with funds, 0.10% on next £250,000 to £500,000 and no fee on anything over £500,000
Aviva
0.35% on the first £500,000 and no charge on anything over £500,00
Vanguard
£48 a year on first £32,000 and 0.15% (maximum £375) on anything £32,000 or more
InvestEngine
No annual fee
Trading 212
No annual fee
Fees for trade shares or funds can vary across providers too.
For example, Hargreaves Lansdown charges customers with a SIPP £1.95 for each one-off fund trade and £6.95 per share trade (if they made 0-19 trades the month before) and £3.95 per trade (if they made 20 or more trades the month before).
SIPP customers with ii paying for the basic £5.99 per month ‘core’ package pay £3.99 per fund or share trade.
AJ Bell charges customers £5 per share trade or £3.50 if they had 10 or more share deals the previous month. Fund dealing costs £1.50 per trade.
Some providers have better customer service than others too, while some platforms offer a wider choice of funds or shares to choose from than others.
How to find the best SIPP for you
Ultimately, the best provider for you will depend on what you want from your SIPP and how much money you have to invest.
Freetrade is the best low-cost provider as it charges no trading fees across its plans and has a wide selection of education guides and market insights.
AJ Bell is considered the best for customer service, while also offering a wide range of investments to choose from.
If your choice of SIPP is based purely on platform fee then, generally, platforms charging fixed fees cost less for those with larger pension pots, according to Sam Richardson, editor of Which? Money.
If you’ve got a smaller pot, percentage-based annual platform fees tend to be the most cost-effective option.
Richardson also said it’s worth checking if a platform fee includes the cost of funds held within a SIPP as some providers will charge an additional ongoing fund charge.
He added that sometimes SIPPs with ready-made portfolios can prove cheaper, in terms of fees, than if those same funds were held within a DIY SIPP.
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