SIPP charges can reduce pension pots by £100,000

Research has revealed the extent to which self-invested personal pension (SIPP) charges can eat into an individual’s pension pot, with The Lang Cat finding that investors could pay almost £100,000 more in pension costs depending on where they’re saving.

The figures are based on someone who has a starting pot of £100,000 that they hold for 30 years and contribute £10,000 to annually, and the results are surprising. If that person had an interactive investor SIPP, they’d have a funds portfolio value of £1,104,900 at the end of the 30 years, but if they’d have invested in a Standard Life SIPP they’d be left with £94,800 less (£1,010,000) at the end of the period, purely due to SIPP charges.

This highlights the savings that can be made by opting for more modern platforms rather than old-style pension companies, and it’s predicted that the cost of investing could be reduced in the coming years as the industry feels the pressure from more of these “challenger” companies.

“Saving almost £100,000 with an ii SIPP compared to a life company pension sounds incredible, but it’s a very real prospect for an above-average earning 38-year-old,” commented Richard Wilson, CEO of interactive investor, the firm that commissioned the calculations. “This is money that should support your quality of life in retirement, or help secure your children’s future.”

Given the potential impact that fees can have on an individual’s final pension pot, it’s vital to know what’s involved. There are a lot of charges to bear in mind when saving into a pension, from fund management costs and advice fees to discretionary fund management fees and SIPP charges, with the latter in particular having come under the spotlight following rule changes designed to make the fee structure more transparent. This means it’s easier for pension savers to see where their money is going, and to see if they’d be better off moving their pension elsewhere.

“Where you are best served as a pension saver depends on a lot of factors, including how much you have to start with,” said Moira O’Neill, Head of Personal Finance at interactive investor. “Before switching out of any life company scheme check that you are not losing any benefits. But for many there are potentially big savings to be made.”

This is why finding the right SIPP provider is essential; more information, together with the top-rated products, can be found on our best SIPP and SSAS overview.