Pension Provider Fees and Charges
This section is destined to become the most rewritten and amended section of the whole Blog, not only because pension provider fees and charges keep on changing but because those costs are so opaque and complex, and all differ slightly from each other in a whole range of areas. Explaining all the permutations is something of a challenge!
Your choice of provider will be influenced by a combination of the charges and fees incurred for your particular circumstances (see the charts below) and your gut feeling for which provider is for you, based on some of the independent comments in the tables above.
So, let’s try to make it simple and start at the beginning!
Bringing your Investments together under a single Platform/Provider
As mentioned elesewhere in the blog it makes sense, if you are going to actively manage your pension, to bring all your diverse investments into a single platform. This will include all your ISAs, any SIPPs or AVCs you may have set up and of course your Pension pot. In doing so you may need to pay charges to transfer those investments from your existing providers to your newly chosen provider (there are charges for pretty much everything in the Pension world). Whilst these may seem steep, do bear in mind that you will probably stay with your new provider throughout your retirement and the cost will therefore be spread across a couple of decades. Most of the platforms make the transfer process very easy and they will do most of the work for you, once you let them know what investments you want aggregating on their platform.
Comparing the fees and charges for your particular circumstances (Jump straight to the charts!)
This bit is really important because you could end up paying 50% more in charges/fees than you need to if you get it wrong – if this is the first time you have used a platform you have a real opportunity to save money, by selecting one that will match your needs at the lowest possible cost. If you already have one there are costs to switching and the inevitable inertia that accompanies such a decision.
So – start by going back to the top of the page and reviewing your approach to investing, as the answers to these questions will determine the nature and size of the fees you incur. There are essentially two types of fees or charges you will have to pay – Platform/Annual Management charges are those imposed by the platform. Fund Management fees are those charged by the managers of the funds you hold in your investment portfolio ( and are passed on to you, or often discounted by the platform) . You need to add both together to work out your total cost of management, and it is this combined figure that you should use in our calculators.
As the consultancy Platforum said in a recent research piece on platform costs, “No single scenario reflects reality for any investor” so it is a case of comparing options and choosing the one that best meets your particular circumstances. The biggest differences to the fees that providers charge are in these key areas:
- Platform /Annual Management charge as a percentage of your investment pot
- The number of trades made each year
- Setup fee for Flexi-access drawdown (FAD)
- Annual fee for FAD
- FAD One-off payment to you
- UFPLS payment to you
- Transferring to another provider or closing the account within a year
Platform/Annual Management Charges
These are normally charged as a percentage of the total investments you hold with the platform. Some, like Hargreaves Lansdown use a tiered charging system – so for example 0.45% for the first £250,000 and then 0.25% for the next £750,000, and so on. Others, like Telegraph Investor charge a flat fee, for example 0.3% regardless of the size of your portfolio. Clearly, in these two examples, Telegraph Investor would appear to be cheaper for smaller pots, whilst Hargreaves Lansdown would appear to be cheaper as your portfolio gets larger. Every platform has a slightly different take however, and you need to consider the totality of all the charges that might apply before making a decision.
Trades made each Year
If you plan to be an active investor and change your funds fairly regularly during the year, the cost of each trade become significant. Hargreaves Lansdown don’t charge for fund trades whilst Halifax Sharedealing charges £12.50 per fund trade.
Setup Fees for Flexi-access Drawdown (FAD)
Many platforms don’t charge to set up a FAD but Trustnet Direct charge £204
Annual Fee for FAD
Neither Hargreaves Lansdown nor Fidelity charge a setup fee or an annual FAD charge, but with Interactive Investor you would pay £170 a year.
FAD One-off payment to you
Charles Stanley will charge you £150 each time you want to make a withdrawal from your drawdown plan but others don’t charge.
UFPLS Payment to you
If you are planning to use UFPLS as a means to fund your spending in retirement and drawdown your pension pot you could pay nothing each time you make a withdrawal or £100 a time with James Hay.
Transferring to another provider or closing the account within a year
Platforms make their money when they have you as long term clients, so it is not surprising they take a dim view of you leaving them early (rather like mobile phone contracts). Most platforms charge between £200 and £300 for you to escape their clutches.
SIPP Platform Fees and Charges
Our good friends at the Lang Cat have crunched the numbers on costs to hold and manage SIPPs through the most popular direct platforms, and their research is presented below using their famous ‘heat map’ colouring. The two charts use identical data but the first one looks at the pure monetary costs involved whilst the second looks at the costs as a percentage of the portfolio size listed in the top row. These charts are from their latest report ‘Come and Have a Go Too‘ (July 2015) and update some of the fees and charges now the dust has settled from pension freedom day. In the time honoured colouring scheme, green means lower costs while red means higher costs:
As you can see there are no providers who are green for every level of portfolio size. Some of the extreme charges for smaller size portfolios are accounted for by the SIPP wrapper fee, which is an up front cost with some providers. Some also waive the wrapper fee when a portfolio reaches a certain size.
In the real world your portfolio will already hold some ISAs (an average of around £20,000 at age 55 according to HMRC) and the platforms mostly apply different charges to holding and administering these for you. To avoid confusion we have shown similar charts to those above, but for ISAs in our ISA section and you can jump to them here.
More confusingly still, some providers will count both your NISA and SIPP balances towards a total for tiering the platform charge down. Some don’t (Hargreaves Lansdown). Fixed fee providers like Alliance Trust Savings will charge you the relevant fees for each wrapper. Sticking with this theme, if you’re holding a portfolio across say, a NISA, a SIPP and a trading account, and you want to sell and rebuy two funds which you don’t love any more, you’re in for a total of 12 trades. That’s two switches (four individual trades) across the three
accounts. This can soon mount up for those platforms who levy trading charges. What does it all mean? Broadly, if you have a smaller portfolio – probably under £100,000 but maybe a bit less, you’ll be better off with a percentage-based provider, especially if your money is split across NISA, SIPP and dealing account and if you trade regularly. Conversely, if you’re fortunate to have a larger portfolio then a fixed fee provider will probably be better on cost grounds, especially if you buy and hold. As Lang Cat says, “There are, irritatingly, a thousand shades of grey in between.”
We will try to regularly update any platform price changes in the Blog as they occur, but the Telegraph has undertaken to regularly update the much more useful tables that allow an ‘at a glance’ view of the DIY Pension heat map. This latest one is from 29th June 2015 and you can always check their informative site to see the latest version.
Which? Magazine have recently called for a cap to drawdown charges for products sold by someone’s existing provider, highlighting in a report the large variations in fees and charges for various pension activities. If you have read this far, you will know that to be the case, but will also appreciate that with a little knowledge it is possible to select a provider that offers the best value/service trade-off for your particular circumstances. Rather like with car insurance and annuity rates, you take the default solution from your existing provider at your financial peril. IMHO they should be focusing on providing better information to those considering drawdown, rather than trying to reduce everything to the lowest common denominator.
Updated 2 September 2015
Our good friend The Accumulator at the Monevator Blog for Armchair Investors has just published a comprehensive table of the cheapest online brokers and platforms. The focus is on passive investing, so if you are an active investor and trade frequently then you will want to look closely at the data rather than the conclusions drawn. That said, he has done an outstanding job of collating all the various charges and the data is bang up to date. Well worth a look!