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SIPPs - BEWARE: Hidden fees and cost cutting

So you've just booked your dream holiday and now all that’s left to do is a little shopping around online to find the best deal on flights. Suddenly you stumble across a great deal; "£120 for a return flight with a no thrills airline?" you say. "Sign me up!" You get all the way through the process of booking it and then all of a sudden you get hit with a screen full of dreaded '£' symbols and a whole bunch of extra charges; "seat selection booking fee" "priority boarding charge", "extra leg room", "extra oxygen" etc. So begrudgingly, not wanting to begin the whole, excruciating process afresh, you pay what is now actually much more than the headline figure that hooked you in. Chances are, on the day you're due to fly out you’ll rock up at the airport only to find that you're liable for yet another charge; oversized baggage, use of trolley etc. Great!

Now some of these charges could be additional extras but at least some will be completely unavoidable. Nevertheless, we've all been there and we've all ended up asking ourselves the same question: wouldn’t it have been more client centric to have saved me a whole bunch of time by being completely upfront about all fees that will apply in the first place?

Much like booking a flight, concert tickets or even dealing with a property letting agency, some SIPPs are, unfortunately, havens for hidden charges. We are all to blame for this though, it’s just part of the modern illusion of the cost of anything from a pint of milk to that flight to the Seychelles that we, at best, inadvertently buy into.

Now that SIPPs are near ubiquitous and the proliferation of ‘Low Cost’ or ‘Free’ SIPPs continues apace, one would be forgiven for asking why anyone would look further than the cheapest deal out there. After all, a SIPP is a SIPP, right?

Well, the headline cost is the wrong criteria to use. From energy suppliers to plumbers to SIPP Operators, it’s always the wrong criteria. If it looks too good to be true, it usually is.

Firstly there’s the strong likelihood that your SIPP will end up costing more than it appears and the danger that this won’t become apparent until it’s a little too late, possibly not until the SIPP has been running for year. Alternatively, it might never become apparent. How many SIPP clients must there be who are blissfully ignorant of the interest their SIPP bank account earns being creamed off by their Provider?

Then there’s the often overlooked value for money aspect. What is it a client buys when they take out a SIPP? Most SIPP operators probably see themselves as selling SIPPs and want to maximise profit via a bland product that can be stacked high on shelves, like boring cheese in a budget supermarket. To use a skiing analogy, think of it as access to a handful of the green runs in what is actually a massive winter resort.

That in itself might suit lots of clients, especially if the costs of that restricted access truly are very low indeed. But what if other people are off enjoying powder covered black runs but only paying slightly more, or in some cases, less? That’s hardly value for money.

Don’t be fooled by the headline fees, dig deeper and understand what you or your client, will actually be paying at set up and annually. It’s likely to differ from the amount that first piqued your interest.

But, also ask yourself what you get for those fees. In addition to the product, are you also buying the promise of customer service? Probably, but does your provider allocate a dedicated point of contact who administers the SIPP on a portfolio basis? What sort of turnaround times does your provider work to? Get a look at their Service Level Agreement (do they even have one?), ten day turnarounds are considered pretty good in this industry but even these are frequently breached in our experience. Has your provider fully grasped the implications of the new Capital Adequacy requirements imposed on the industry by the Regulator? These are all things a discerning investor should be buying and the questions they should be asking.

Here at PSG, we know that some people are discerning. We know that service still matters and we certainly know that SIPPs can be interesting products that give control to the member and allows them to access returns that are unlikely to be enjoyed by those swayed by the often misleading lure of the seemingly low cost basis.

Bottom line; it’s not like clients are buying a packet of crisps. A SIPP is a tax efficient, long term savings vehicle and should be approached with due regard to the features it offers and the ethos of the Operator. Not all SIPPs are the same and the industry is already polarised. Clients need to ask themselves what they are buying, not what they are being sold.

The good news is that there are providers out there who are completely upfront about their costs, with the technical knowledge and in-depth understanding of pension provision to shape a product around you or your client's objectives without the hidden extras. That’s where we come in.

We offer a Master Trust SIPP and an Individual Trust SIPP. Both give access to Non-Standard Assets, both are looked after by dedicated portfolio administrators and both have service level agreements of three days! What’s more, our Master Trust SIPP is cheaper than many who don’t boast any of these features.

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