My dear friend Jean is retiring on 2nd April 2017 when she will be 63yrs 3 mths. She has a small pot of Additional Voluntary Contribution (unit-linked) with Equitable Life of £51K.
She is planning to take 25% tax free from the pot and invest the rest into a flexi- access drawdown with a company that provides SIPPs. On retirement, she plans to invest an annual sum of £2880 into that SIPPs and at the same time withdraw annually about 2% from that pot.
She is thinking of investing her SIPPs on - Vanguard Life Strategy 80/20 (should she go for accumulation or income ?) EFTs or Investments Trusts. She plans to stay invested for at least another 10 years and can tolerate medium risk to her investments.
As it is going to be a small pension pot of about £37k; are there any pointers of SIPPs companies which will suit her needs?
Many thanks.
busybee
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AVC to SIPP
Re: AVC to SIPP
Usually, on TMF anyway, your question would receive some very authoritative responses quite quickly. Be warned: mine is not so authoritative and only you can appreciate your particular situation.
Won't you have to transfer the funds into a SIPP to start with, and then ‘crystallise’ the fund, taking the tax free cash and investing the residue? Best to check with Equitable.
Will you be able to take the money and put it in a SIPP without an IFA being involved? I hope so, but check with your chosen SIPP provider. Interactive Investor told me they always require an IFA to ‘authorise’ a transfer, but Fidelity (see below) , for instance, may well not require it.
Will you be able to contribute to the same SIPP after you have crystallised or will you need to start another? I don't know.
As the previous respondent said, SIPP providers who charge a percentage of the fund value may be the most cost-effective (or will they?). The Cavendish SIPP that was referenced is currently only for the saving phase. According to their website:
There is a usually up to date summary of brokers, many of them offering SIPPs at: monevator.com/compare-uk-cheapest-online-brokers. (This response is limited to 3 links, so I have supplied the Moneyvator ones like you have just seen. It is well worthwhile copying and pasting them directly into your address bar and looking at them).
When considering costs, it's important to allow for any charges for entering drawdown and during drawdown (‘taking benefits’). Historically, these have had a substantial impact on relatively small pots, but the new pension rules have meant that some providers have reduced or even abolished them.
You mention considering Lifestrategy 80%, an investment (tracker) fund, ETFs and investment trusts (ITs). Some brokers charge substantially less for ETFs and ITs than they do for funds.
BTW: 80% equities is considered quite adventurous, I believe.
With ITs: well I don’t know anything about ITs and wouldn’t comment. ITs are actively managed funds, rather than passive. There are big IT enthusiasts on TMF; for instance, see LUniverse’s posts, working backwards from http://boards.fool.co.uk/last-roundup-13459341.aspx.
With ETFs, you would need at least two, one for equities and one for bonds, to achieve your 80:20 mix.
Lars thinks you can get away with 2 funds: monevator.com/this-former-hedge-fund-manager-reveals-how-you-can-invest-for-life-in-five-quick-videos
The Lifestrategy funds are themselves mixtures of multiple investment funds and offer a ‘one stop’ solution for passive investors at the cost of about 0.015% extra (you could argue it is less). And you can choose the ratio of equities and bonds to suit your risk appetite. You can more or less forget about them, because Vanguard do any re-balancing between the various sub-funds for you.
(Recently, I established a SIPP to take over from a small work pension fund that I had no pressing need for and put it all in Lifestrategy100 – I can afford the risk implied. I am far less aware of it and its value than I am of other investments, and that’s good. (If I die before 75, my partner gets it and can withdraw it all without being taxed, I understand). The SIPP costs almost £100/year. However, if I had known about the Fidelity SIPP and it really is as cheap as it appears (see below), I’d have saved myself £55/year at the expense of the complexity of using one ETF and having to reinvest the divi’s.)
Some examples:
Hargreaves Lansdown charges 0.45%p.a and emphasises that there are no additional charges during drawdown, but maybe there’s eventually a closure fee. They are very good, but possibly the most expensive. You can always use their research facilities for free, even if you go elsewhere for your SIPP.
Somebody on Motley Fool recently said they were looking at Bestinvest, charging 0.3%. However, they appear to have significant charges for drawdown (£100 for entering drawdown and £100 p.a. as well as the 0.3%). .
AJ Bell - who charge 0.25% p.a. on the value of your investment, or a maximum of £100 for ETFs and ITs (so your annual fee stops increasing if you have more than £40K, I think), - have various charges that apply during drawdown, see https://www.youinvest.co.uk/sipp/charges-and-rates.
The Fidelity SIPP (0.35% on investment funds or £45 flat fee on ETFs and ITs plus 0.1% on each buy or sell) makes no additional charges for drawdown. See https://www.fidelity.co.uk/static/pdf/p ... tterms.pdf.
I would suggest you draw up a shortlist and then ask each one to confirm your understanding of the ‘lifecycle’ costs in detail of your SIPP. You can see it’s complex.
Finally, beware! These guys keep changing their charging structures.
HTH,
CB
Won't you have to transfer the funds into a SIPP to start with, and then ‘crystallise’ the fund, taking the tax free cash and investing the residue? Best to check with Equitable.
Will you be able to take the money and put it in a SIPP without an IFA being involved? I hope so, but check with your chosen SIPP provider. Interactive Investor told me they always require an IFA to ‘authorise’ a transfer, but Fidelity (see below) , for instance, may well not require it.
Will you be able to contribute to the same SIPP after you have crystallised or will you need to start another? I don't know.
As the previous respondent said, SIPP providers who charge a percentage of the fund value may be the most cost-effective (or will they?). The Cavendish SIPP that was referenced is currently only for the saving phase. According to their website:
For the time being it is not possible for clients of the Cavendish Online FundSupermarket Pension to take withdrawals from their pension by going into drawdown. This is because we are not permitted to provide our clients with advice relating to drawdown.
If you wish to drawdown from your pension you will need to transfer or re-register your pension away from the Cavendish Online FundSupermarket Pension to another provider who can provide drawdown. We do expect to be able to provide our clients with access to drawdown at some time in the future.
There is a usually up to date summary of brokers, many of them offering SIPPs at: monevator.com/compare-uk-cheapest-online-brokers. (This response is limited to 3 links, so I have supplied the Moneyvator ones like you have just seen. It is well worthwhile copying and pasting them directly into your address bar and looking at them).
When considering costs, it's important to allow for any charges for entering drawdown and during drawdown (‘taking benefits’). Historically, these have had a substantial impact on relatively small pots, but the new pension rules have meant that some providers have reduced or even abolished them.
You mention considering Lifestrategy 80%, an investment (tracker) fund, ETFs and investment trusts (ITs). Some brokers charge substantially less for ETFs and ITs than they do for funds.
BTW: 80% equities is considered quite adventurous, I believe.
With ITs: well I don’t know anything about ITs and wouldn’t comment. ITs are actively managed funds, rather than passive. There are big IT enthusiasts on TMF; for instance, see LUniverse’s posts, working backwards from http://boards.fool.co.uk/last-roundup-13459341.aspx.
With ETFs, you would need at least two, one for equities and one for bonds, to achieve your 80:20 mix.
Lars thinks you can get away with 2 funds: monevator.com/this-former-hedge-fund-manager-reveals-how-you-can-invest-for-life-in-five-quick-videos
The Lifestrategy funds are themselves mixtures of multiple investment funds and offer a ‘one stop’ solution for passive investors at the cost of about 0.015% extra (you could argue it is less). And you can choose the ratio of equities and bonds to suit your risk appetite. You can more or less forget about them, because Vanguard do any re-balancing between the various sub-funds for you.
(Recently, I established a SIPP to take over from a small work pension fund that I had no pressing need for and put it all in Lifestrategy100 – I can afford the risk implied. I am far less aware of it and its value than I am of other investments, and that’s good. (If I die before 75, my partner gets it and can withdraw it all without being taxed, I understand). The SIPP costs almost £100/year. However, if I had known about the Fidelity SIPP and it really is as cheap as it appears (see below), I’d have saved myself £55/year at the expense of the complexity of using one ETF and having to reinvest the divi’s.)
Some examples:
Hargreaves Lansdown charges 0.45%p.a and emphasises that there are no additional charges during drawdown, but maybe there’s eventually a closure fee. They are very good, but possibly the most expensive. You can always use their research facilities for free, even if you go elsewhere for your SIPP.
Somebody on Motley Fool recently said they were looking at Bestinvest, charging 0.3%. However, they appear to have significant charges for drawdown (£100 for entering drawdown and £100 p.a. as well as the 0.3%). .
AJ Bell - who charge 0.25% p.a. on the value of your investment, or a maximum of £100 for ETFs and ITs (so your annual fee stops increasing if you have more than £40K, I think), - have various charges that apply during drawdown, see https://www.youinvest.co.uk/sipp/charges-and-rates.
The Fidelity SIPP (0.35% on investment funds or £45 flat fee on ETFs and ITs plus 0.1% on each buy or sell) makes no additional charges for drawdown. See https://www.fidelity.co.uk/static/pdf/p ... tterms.pdf.
I would suggest you draw up a shortlist and then ask each one to confirm your understanding of the ‘lifecycle’ costs in detail of your SIPP. You can see it’s complex.
Finally, beware! These guys keep changing their charging structures.
HTH,
CB
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