Platforms or SIPPs? BPS or flat fees?

Traditionally SIPPs have been seen as bespoke products, designed solely for investors with very high fund values or for those looking to invest primarily in unusual investments. In recent years, however, the range of products marketing themselves as SIPPs has broadened considerably.

One of the big differences between most SIPP and platform pensions is the fee structure. The majority of SIPP products have a flat fee structure, whereas the majority of platforms charge percentage-based fees.

SIPPs were already known for their flexibility, in relation to retirement options as much as investment opportunities, which meant they were perfectly placed to become the product of choice for taking advantage of the pension freedoms. As a result, there are now many 'mid-market' and 'e-SIPP' type products available, which tend to offer more streamlined investment solutions suitable for a much broader range of investors.

The traditional purpose of platforms was to give investors an easy way to hold multiple savings products in the same place: SIPPs, ISAs and GIAs – all held together. However, it seems that the reality is somewhat different, with plenty of evidence that the average platform investor holds on average considerably fewer than two products on each platform.

Traditional usage aside, one of the big differences between most SIPP and platform pensions is the fee structure. The majority of SIPP products have a flat fee structure, whereas the majority of platforms charge percentage-based fees. We recently commissioned a pricing analysis paper by the lang cat to support the launch of our new product, Your Future SIPP, and of the chosen group of platforms and life companies all except one had a percentage-based fee model.

It's commonly understood that percentage fees will work out cheaper for very low fund values and that fixed fees work out best for those with very large pensions. But where does that cross-over happen and is it that simple?

Of course, the answers depend on which products you're considering, so there are as many answers as there are combinations of products to compare. For this purpose then, we'll use the findings from the lang cat's paper. The first part of their price analysis focuses on funds in the accumulation stage of saving, and compares a number of pension products across the market, primarily using percentage-based charging, with a fixed fee of £260 +VAT.

You might be surprised to hear that the fixed fee works out about market rate for fund values of £75,000, and by the £500,000 mark it is approximately a quarter of the market rate. Looking at the same group of providers but including their costs for a pension in drawdown, the fixed fee model is market rate at a fund value of £200,000, and about a third of market rate by £500,000.

Admittedly, very few fully bespoke SIPP products will be available for that level of flat fee. However, many of the mid-market type products will be. Although relatively simple compared to their multiple-investment-account, commercial-property-holding cousins, these mid-market products are still likely to offer more investment flexibility than a platform pension, and may have other advantages over them too. For example, cost is only one of many factors, and service may be a key differentiator in the choice between a SIPP or platform pension. Many of these mid-market products will be offered by dedicated SIPP providers, meaning advisers and their clients will have access to the same levels of administration, service and support as the provider's bespoke SIPP holders.

SIPP providers are also more likely to offer a fully flexible range of retirement benefit and death benefit options for their clients, and their staff are pension specialists. It's certainly true that you have to take care to choose the right SIPP provider, given some of the recent headlines. Legacy issues are working their way through the industry and poor practices are being weeded out, but this means that despite the negative press, the outlook for the SIPP market is good. We believe it will emerge stronger, and well placed to continue serving the needs of pension freedoms customers. At the same time, platforms have hardly been immune from their own challenges, with many reported issues with re-platforming and reams of regulatory changes.

Of course, there are many factors to consider with any pension and transfer decision. However, it's worth considering that with the range of SIPPs available today, they may be valid options for people who wouldn't traditionally be seen as SIPP investors. Is it worth thinking twice the next time you see a client with a pension fund over £75,000?

PRODUCT CHARGING APPROACH CORE CHARGES PENSION CHARGES DRAWDOWN CHARGES
Curtis Banks Your Future SIPP Fixed-fee £260 + VAT for investment partner list, £560 + VAT for full investment range. Pension only £120 + VAT for designating funds, £150 + VAT per annum for income.
Prudential Retirement Account Stepped % Steps down from 0.45% to 0.25%
Royal London Pension Portfolio Stepped % Steps down from 0.90% to 0.35% £199 one off drawdown fee (removed if plan in force for over 12 months)
Scottish Widows Retirement Account Stepped % Steps down from 0.90% to 0.10%
Aegon Retirement Choices (ARC) Tiered % From 0.60% to 0.45% capped at £1,215 pa £75 annual fee
AJ Bell Investcentre Hybrid From 0.20% to 0.10% Between £30 to £50 quarterly charge + VAT depending on fund value. Waved above £200k. £150 + VAT flexi-access drawdown charge. Menu of additional drawdown charges.
Alliance Trust Savings Fixed-fee Fixed-fee applies per wrapper. £210 + VAT for standard SIPP, £350 (no VAT) on the inclusive fee option where trades are bundled in. Additional £90 admin charge on top of the usual pension fee.
Ascentric Tiered % 0.30% down to 0.06% (minimum £180 annual fee)
Aviva Platform Tiered % Tiered from 0.40% down to 0.15%. Non-pension wrappers have lower tiered fees that start at 0.25%.
Elevate Stepped % Stepped charge from 0.35% to 0.25%
FundsNetwork Hybrid 0.25% + £45 annual fee
James Hay MiPlan Hybrid 0.25% down to 0.01% Additional £179 fee for portfolios lower than £200k Annual £154 charge and £100 set-up fee.
Novia Tiered % From 0.50% down to 0.15% £62.50 + VAT charge for any 12-month period when an income payment is made.
Nucleus Tiered % 0.35% down to 0.05%
Old Mutual Wealth Tiered % 0.50% down to 0.15%
Seven IM Tiered % 0.30% down to 0.15% £100 + VAT if the account value is less than £75K £135 pa for taking income, £75 for each crystalisation.
Standard Life Wrap Tiered % From 0.55% down to 0.25%. Like Aviva, non-pension wrappers have lower charges. Lower still 'core terms' are available for adviser firms placing large quantities (£20m+) of business. This results in 10 basis points off the pension.
Transact Tiered % From 0.5% down to 0.05% £80 annual charge
Zurich Intermediary Platform Tiered % From 0.35% down to 0.10% £75 annual fee

If you would like any more information about Curtis Banks or the Your Future SIPP, please call us on 01473 296 950 or email enquiries@curtisbanks.co.uk