Can you afford the pensions of the future?

As more retirees consider self-invested personal pensions (Sipps), which offer a pension with wide investment choice and the flexibility to take income, new Which? research finds charges can vary hugely and cost retirees thousands of pounds.

In the wake of pension freedoms, Sipps are shifting toward the mainstream and are used by more savers who want to grow their pensions by investing in a wide range of funds, bonds and shares. Sipps allow people to transfer all of their pension in one place, keep the money invested if they want to grow it and enable retirees to take income flexibly when they want to.

Managing a Sipp can, however, come at a considerable cost. Which? has analysed 14 of the largest investment brokers and so-called ‘low cost’ Sipps, which are provided by fund supermarkets and bought off the shelf by investors that don’t use a financial adviser. Our research finds that headline rates will only give investors some of the story and high charges can end up costing savers thousands of pounds:

  • Barclays Stockbrokers is the most expensive: combining an annual administration charge of £186, a platform fee of 0.35% and high pension-transfer charges to reach a total of £1,041 in the first year.

  • Providers offering only fixed fees were the most cost-effective option in our analysis.

  • Even with higher dealing costs, Alliance Trust Savings (£341), The Share Centre (£344) and Interactive Investor (£376) were up to £700 cheaper than the most expensive example.

  • Results change for smaller pots: when we examined the price of having £50,000 in a Sipp across five funds, Hargreaves Lansdown (£225 and Best Invest (£150) were much more competitive.

Harry Rose, Which? Money Editor, said:

“While choosing what to do with your hard-earned pension savings shouldn’t just be about cost, even the smallest fees over time can make a startling difference to the size of your retirement pot.

“Investors should do their homework: some fees cannot be avoided but there may be cheaper options available. Watch out for expensive exit fees, check any benefits to do with your pension before transferring and speak to Pension Wise or a financial adviser.”

Consumers considering transferring pensions should check:

  • Exit fees: some pension providers charge substantial exit penalties to take money out of your pension, so it’s worth checking  out the charges first.

  • Guaranteed annuity rates: some personal pensions taken out a long time ago have attractive guaranteed annuity rates written into them, which you may not want to surrender.

  • Death benefits: some defined benefit and personal pensions have attractive death benefits – will pay an income to your spouse when you die – which you may lose if you decide to transfer out.


Notes to editors

  1. We compared the costs for someone transferring three pensions totalling £200,000 into a SIPP: £150,000 put into funds and £50,000 into shares. The charges incurred by 10 online trades (five into funds, five into shares), plus platform charges over the first year were included. Full table of results is below:

  2. Barclays Stockbrokers and James Hay will become less expensive in year two as you won’t have to pay pension-transfer fees.

  3. Each month, Which? members rate the best and worst investment brokers rated customer satisfaction. The table below shows customer score by each broker:

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