Vanguard launch a new low cost pension – is it really the cheapest option?
SIPPs are popular among workers who wish to save for retirement. According to the Pensions Advisory Service, SIPPs offer much wider investment options than are generally available for personal and group personal pensions. These further options include quoted UK and overseas stocks and shares, unlisted shares, collective investments, investment trusts and even property or land.
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SIPPs are usually simple to set up and they offer tax incentives for retirement. While it is possible to set up SIPPs among a number of well known companies, Vanguard has just turned heads by launching its own low cost option.
Officially called the “Vanguard Personal Pension”, the SIPP has a fee of 0.15 percent per year which is capped at £375.
Up to £40,000 per year can be invested in this SIPP and the contributions to it can be small.
The pension can be opened with an initial lump sum of £500 or there can be a monthly contribution of £100.
Once the account is set up it can be managed on any type of device, other pensions can be transferred over and there is flexibility in how the portfolio within it is structured.
Vanguard is well known for their selection of funds and this SIPP has access to 77 different options. Vanguard claim that there are no other hidden investment charges but it should be noted that certain actions could trigger other charges.
For example, investment funds themselves have transaction, incidental and fund charges.
Vanguard claim that their are SIPP is “the lowest” SIPP available for the average British pension holder.
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They base this off research carried out by the independent research company Platforum.
Platforum produced an analysis in November 2019, taking the average (median) British pension holder not yet in drawdown, they detailed that the average pot size is £40,500. However, the data that Platforum used was from the ONS which was itself from February 2018.
As such, it may be difficult to determine how accurate this claim is as we move further into 2020.
While each SIPP provider will have different options and types of charges (which can vary on the size of the pot invested), it is possible to roughly gauge how the Vanguard SIPP compares in terms of annual fees.
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Some of the UKs most popular pension providers charges are as follows:
- Hargreaves Lansdowne: Annual SIPP account charge: 0.45 percent
- AJ Bell You Invest: 0.25 percent on the first £250,000, 0.10 percent on funds between £250,000 and £1m, 0.05 percent for funds between £1m and £2m, no charge on values over £2m
- Interactive Investor: II have an administration fee of £10 per month as well as a service plan fee of £9.99 a month
- Aviva: 0.40 percent on the first £50,000, 0.35 percent on the next £200,000, 0.25 percent on the next £250,000 and there is no charge on amounts over £500,000
- Fidelity: 0.35 percent service fee
While this list is not exhaustive, it’s clear to see that while the 0.15 percent fee offered by vanguard is certainly cheap, it is possible to find cheaper options for those with large pension pots.
This should be especially of interest for larger pension holders as the new Vanguard account has a limit of £40,000. SIPPs generally can be a good option for people looking to fund retirement but the government advises that careful consideration should be given before any decisions are made.
According to the Money Advice Service, SIPPs may have higher charges than other types of personal pensions. They detail that for these reasons, SIPPs tend to be more suitable for large funds where the charges will not have a noticeable impact.
They also detail that SIPPs may be more suitable for people who are experienced in investing, due to their large range of investment options.
As they explain, it may be advisable to seek professional advice for this area or consult government backed resources like the Pension Wise service.
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