Huge hidden impact of pension fund charges

Self-invested personal pension customers are losing tens of thousands of pounds over the long term, through commissions paid out of their pension funds by the fund managers to the Sipp provider, according to Alliance Trust Savings.

The ATS figures reveal that over 10 years a £50,000 pension pot in a conventional Sipp, growing at 7 per cent a year, grows to £85,400; but if commission at 0.75 per cent a year had not been siphoned off it would be worth an additional £4,900.

After 25 years, the Sipp is worth £190,700, rather than £221,800 – a loss of £31,000 (16 per cent of its potential value) to commission charges.

On a £100,000 pension fund transferred into an ATS Sipp, the difference is even more pronounced as a result of commission, with a gap of more than £68,000 – 18 per cent of the gross value of the fund – opening up over 25 years. Commission charges will reduce it to around £381,000 rather than £449,000.

‘Many people overlook the charges levied and as a result may be losing thousands of pounds in their retirement,’ says Steve Latto, head of pensions at ATS. He makes the point that the need to maximise your pension fund capability is all the greater as a result of increases in the minimum retirement age and major market setbacks over recent years.

A couple of Sipps do protect customers’ wealth from the eroding impact of fund manager commission.

Cavendish Online is a discount broker offering its branded Sipp through the Fidelity FundsNetwork platform, which means it provides access to the 1,100 or so funds available on FundsNetwork. But unlike other Sipp providers using the Fidelity product for clients, Cavendish rebates all the annual trail commission, minus a £10 administration charge.

If you plan to transfer or set up a pension with Cavendish Online, however, be aware that you cannot invest in shares or other stock market listed investments such as investment trusts through the FundsNetwork platform.

The Alliance Trust Savings’ Select Sipp is an alternative. It offers access to more than 1,200 funds as well as investment trusts, shares, gilts and exchange traded funds.

ATS rebates to each Sipp customer the full amount of commission received from fund managers, which can be up to 0.875 per cent, each year. The ATS product operates a somewhat unusual charging structure, though arguably more transparent than most.

You’ll pay a flat annual Sipp charge of £75 plus VAT, plus a flat rate dealing fee (from £12.50 for online transactions) on all the underlying investments held, including funds.

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