For the everyday saver who is unwilling to rely on the Government or an employer to provide their retirement income, self-invested personal pensions (SIPPs) offer a do-it-yourself option.
They differ from traditional private pensions, which are offered by insurance providers, leaving you dependent on their investment prowess. With SIPPs you have more freedom to pick your own investments.
As with most aspects of our lives, we can now set these up online and select between ready-made options. Alternatively, we can pick a provider and choose our own portfolio. There are hundreds of choices out there. Here I have outlined what I think are the best value options available today.
But to make your selection you will need to consider several factors.
TYPE OF INVESTOR
One of the first questions I ask people who are looking for a SIPP is how confident they feel about the stock market. Do they want to pick and choose their investments and take an active interest?
If the answer is yes, then AJ Bell Youinvest, Interactive Investor or Hargreaves Lansdown are probably best for you.
If you are not interested in looking at graphs and charts, then Aviva, Nutmeg and Standard Life are good at giving you a helping hand along the way. The confidence factor will play a huge part in determining which SIPP represents the best value.
Any assessment of value has to start with price as an anchor. But just working out how much financial products will cost can be confusing.
The key issues to bear in mind are the size of your pension pot, how much you are likely to buy and sell shares and funds within your plan, and the intended contents of your portfolio.
Making a few assumptions, I have analysed what I consider to be the five cheapest pensions on the market.
I have assessed only mainstream brands that I see as being a safe pair of hands. In my scenario, the cost of administration ranges from £69 to £113 a year for £25,000 pension pots.
For £75,000 nest eggs, they range from £176 to £225 a year. The figure is £216 to £413 a year for £200,000 pension pots.
Some providers charge a fixed fee, which starts to make them relatively cheap for larger accounts.
Bear in mind that on top of administration costs you need to add in the annual charges for any investment funds bought. These will range from about 0.2 per cent to 0.75 per cent of your holdings, depending on which funds you choose.
Once all the fees are added together, expect to pay between 1.1 per cent and 1.3 per cent for a pension that you manage yourself.
When looking at a SIPP, I always start with costs, as these are objective facts.
When moving to assess value, we have to factor in other elements, such as service and how user-friendly the pension providers are.
As well as carrying out relentless desk-based research at Boring Money, we also talk to customers to get their feedback and experience.
We have worked with more than 400 investors to get more than 600 detailed reviews of various online investment services over the past few months – like me, many investors have more than one account.
Based on these reviews, we can see the favourites in the table, right, with scores out of five. These ratings combine value for money, service and the quality of the website.
It is interesting to note that many of the top-rated providers are not the cheapest, lending weight to the argument that good service typically costs more.
One of the biggest discrepancies I note between SIPP providers is the response time and quality of the service teams.
Beware of relying on speedy service from those providers who use another pension specialist firm to do their administration.
Reports suggest that Interactive Investor’s service falls down here, though for some investors its competitive prices more than make up for this.
You may want to speak to a pension specialist in person, especially if retirement is on the horizon and you are likely to need some help in understanding all the options. AJ Bell Youinvest has a strong pensions heritage.
On the service front, do you value a provider where a human being who knows their stuff and is empowered to make decisions, answers a phone in a few seconds?
In that case, busy, impatient folk will value the excellent service of Hargreaves Lansdown, which avoids the rigmarole of ‘Press 1’ for this and ‘Press 2’ for that.
Some of the bigger, more traditional SIPP brands have websites that are still a bit tricky to navigate on a phone.
My father is a retired Scottish accountant who tuts whenever I talk about apps, service and other ‘fluffy things’. He is after the lowest price and has used Interactive Investor in the past.
By contrast, I am ferociously impatient and cannot bear call centres.
So I tend to use Hargreaves Lansdown for my SIPP, though I am reaching the tipping point as a result of its stubbornly high charges, which are starting to irritate me.
If you are new to SIPPs and value being with a major, established brand, then Aviva and Standard Life are the undisputed big boys. They have been around for donkey’s years and are as solid as they come.
They are slowly catching up with the digital age and putting more focus on the non-advised customer. Just do not expect great flexibility or digital delight. This is a steady-as-she-goes choice.
I recently helped a newcomer to invest and set up a pension. She chose Nutmeg to ‘help her through the maze’ and is delighted.
Much like the Waitrose versus Lidl debate, it is easy enough to compare SIPPs on cost. But value is a more subjective decision.
This article first appeared in the Mail on Sunday, 30th June 2017, and can be read here.