Comparing the costs of Sipps

Sipps are able to use a range of different charging structures, with some using a fund-based charge - like most personal pensions - and others opting for flat rate fees.

Some may also charge on a time-cost basis for specialist services, such as dealing with commercial property purchases, or processing requests to divide pension savings in the event of divorce, etc.

Sipp providers will have schedules listing all the different fees for the services they provide. These can be given in pounds and pence, or as a percentage of the value of the account or transaction.

Chris Marshall, senior technical specialist at Hornbuckle, says advisers should start by looking into what sort of investments will be held, how often will switches be made, does the client want to take a drawdown pension, and so on.

Paul Evans, pensions technical manager of Suffolk Life, agrees an adviser’s first consideration should be the individual needs of the client.

He says they need to ascertain whether the client is in drawdown, what investments they wish to include, the level of investment control that is required and how much income flexibility should be available.

Mr Evans says this allows the adviser to select providers that are able to meet the investor requirements.

Charlene Edwards, technical services consultant at AJ Bell, says advisers can then draw up a list of the Sipps that provide the features that are actually needed by their client, and then compare the costs of those for a range of account values.

At this point, Suffolk Life’s Mr Evans says the adviser can then test the providers through their own due diligence.

According to Mr Evans some important factors to consider are:

• financial strength;

• reputation;

• service levels;

• future proofing - can the provider meet future capital adequacy/due diligence requirements;

• does a single investment make up a large portion of assets under management; and

• specialist support services, such as property management.

Once the shortlist of high quality providers that meet the client requirements has been reached, Mr Evans says only then should a cost comparison be undertaken “on a level playing field”.

Matthew Rankine, director of sales and marketing at Liberty Sipp, says there are plenty of comparison tools available to assist advisers with drilling down to the total cost of a Sipp such as Selectapension, Capita, Synaptics and Defaqto.

Mr Rankine says advisers can also email providers asking for illustrations that show the effect of charges on a client’s pension.

He says these illustrations will typically give you a figure at retirement based on three different growth rates and these can be used to compare fees.

Hornbuckle’s Mr Marshall says many advisers fighting their way through comparisons will be aware that Sipps have historically been priced at a level that reflected their bespoke, specialist nature.

But Mr Marshall says the use of technology and the gravitation away from more specialist investment types, as well as a general decrease in the price of personal pension plans, has meant the cost of Sipp contracts as a whole is now more or less on par with other pension products.