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PENSIONS you run yourself have been sold as the perfect antidote to mediocre pension fund managers. You choose what goes into your portfolio, be that funds, individual shares or – after April 6 2006 - property. With a self-invested personal pension, known as a Sipp, your portfolio exactly tailors your needs and you are involved in the selection process.
Many Sipp providers still see the market as the domain of the high-earning minority and keep charges high because their clients are investing very large sums of money. But changes coming in next April as part of the so-called A-Day revolution mean Sipps are attracting investors with more modest contributions, so charges should come down to reflect that.
The problem is that some have fixed charges that take no account of how much or how little is being paid in. As a result, modest amounts of money can be hit by disproportionately high fees.
For example, someone saving £8,000 a year - £666.67 a month - with Standard Life faces charges that add up to a maximum of 11.75% (£940) in the first year. In the second year, charges still stack up to 8.13% of the money invested, which is more than eight times the maximum charge for a stakeholder pension plan.
Robert Reid, managing director at London-based IFA Syndaxi believes Sipp investors must find the charging structure that suits them: 'You need to find out if there are any additional charges for making additional investments. If you are going to put money away each month, you want to avoid companies that charge extra for that.
One final concern that is worrying Sipp investors is disreputable pension administrators that are short-changing them. This particularly concerns inclusion of property within a Sipp. There are real fears administrators who arrange property purchases within a Sipp are pocketing buildings insurance commission and mortgage arrangement fees.
The argument from Sipp Provider Group chairman Martin Cadman is that Sipp providers charge annual management fees as it is and they should not take hidden commissions as well. These payments should be disclosed, and best-practice dictates that they should be rebated to clients.
The Sipp Provider Group has approached the Treasury with a proposal for regulation of Sipp administrators under the Financial Services and Markets Act. The recent response from the Treasury is that it broadly supports the initiative.
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