Most of us pay pension fees for things that don’t matter. Funds that we don’t choose, pension features we don’t use and cross-subsidies we don’t benefit from.
But for a significant number of people, running into millions, the principles of choosing what you pay for and managing those payments through flat fees rather than fund-based charges, matters.
This morning I’m looking at what we pay to have our pension administered. This is an additional amount to what we pay to have our money invested (whether through funds or direct investment).
Research from Interactive Investor suggests that 8 million UK adults don’t think pension administration costs even exist, but they can add up to tens of thousands of pounds over the long-term
What’s more, their analysis highlights eye-watering differences between pension providers. Well it would, Interactive Investor are launching a SIPP administration service designed to undercut it’s rivals.
It “breaks the mould completely” says Richard Wilson, CEO, interactive investor
Just why this news should “break” on a Sunday is a mystery, but it’s good news nonetheless and as I get a few favors from Interactive Investor through Beccy O’Connor’s excellent newsletters, I’m happy to give their new Pension Builder admin service the thumbs up.
Although I mainly write about issues that impact the non-interactive investor, there are a great number of us – myself included – for whom what we pay in fees becomes critical. Fees matter even more when investment returns are low, or negative – as they are today.
The Interactive “do-it-yourself” investment platform allows you to invest in more than funds, it allows your SIPP to invest directly into equities (shares) and it also allows share dealing and in specie transfers between its various accounts and tax-wrappers.
The new £12.99 per month administrative fee is actually good value for people who have large balances.
The plan is aimed at the 6.2 million people in the UK who want to build up their long-term wealth by focusing on their pension.
The platform said the Pension Builder is good value for those who do not want an ISA, and do not trade regularly. The plan will cost £12.99 per month.
Interactive Investor have told me customers will pay monthly the flat fee regardless of the size or composition of their investment. For some smaller pensions that might look steep, but as their pension builds up, this flat fee comes into its own.
It said it had looked, with the support of platform consultancy firm Compare the Platform, at how some of its competitors compare.
It found that a pension portfolio split 50/50 between funds and equities in a £100,000 pension pot, Hargreaves Lansdown pension customers would pay £36.92 per month. While Fidelity Personal Investing and AJ Bell YouInvest customers would pay £19.83 and £23.42 a month respectively.
Interactive Investor added that as pot sizes increase, so too do the charges. Investors with a £250,000 pension pot are paying £65 per month in charges with Interactive Investor’s largest competitor.
Why I’m giving the thumbs up to Interactive Investor
What you see is what you get – a transparent charge in pounds and pence that stays the same as your wealth grows.
Becky O’Connor points out
“Pensions are probably the most important long-term saving you will make in your life – and paradoxically, they are often the most overlooked and misunderstood.
“Although it is great to see more people getting excited about investing – the biggest buzz usually surrounds the latest ‘hype.’ More conversations need to be had about meaningful, long-term savings, which the future ‘you’ will thank ‘you’ for.
“Many people are still unaware that a Sipp, could be a great option for them. Sipps offer the same tax advantages as a standard pension, but you have added control over the investments made.”
Although my table had to become small print to fit this blog, it shows that it pays to take care of the detail.
People who take care of the detail do well. Count the pennies and the pounds will look after themselves.