Fidelity started in the SIPP market with a high-cost plan last year but has now realised its mistake and launched a simple version to compete in the ‘no-fee’ market.
Its new plan has no annual fee, no set-up fee and uses the established FundsNetwork supermarket for fund purchases.
The only drawback is that it only allows you to buy funds and cash deposits. But if that’s where you plan to put your money, then this Fidelity plan is a serious contender with the low-cost leaders: Alliance Trust, HL Vantage and sippdeal.
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Teaming up with Standard Life
Like the higher-cost version of its SIPP - which is still available and offers investment in shares, property and other assets - Fidelity’s cut-down plan is underwritten by Standard Life.
From a business point of view, this is probably a mistake, because Standard Life’s ‘wrap’ – which includes a SIPP within it - is a superior product with many more features and is the one most professional advisers will recommend to those prepared to pay fees.
But Fidelity’s previous blunder in the personal pensions arena - it launched a plan and then pulled out of the market - mean it had no option but to choose a credible external partner.
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Plain vanilla SIPPs suit many investors
In fact Fidelity’s big long-term push is into workplace pensions and its lifecycle funds mean it is well positioned to play a role in Personal Accounts when this new workplace pension scheme is launched in 2012.
But it has been attracted into the ‘plain vanilla’ SIPP market by the surge in the number of people transferring money into SIPPs from existing personal pensions or ‘preserved’ company pensions.
Along with Fidelity, Alliance, sippdeal and HL also offer no-fee plans. The single cost you incur is in the level of initial charge on the funds you buy. HL Vantage offers the best discounts across the largest range of over 1500 funds.
Compare leading SIPPs with our best buy tables
Fidelity still pass on some initial charges
Fidelity’s fund range is about 1000 funds, which is perfectly adequate - many of the extra funds offered by HL are ones you’d never even think of, let alone want to invest in. However, while Fidelity offers no initial charge on some funds, most carry an initial charge of 1-2%.
The HL, Alliance and sippdeal plans also allow you to buy shares, though here you pay sharedealing charges and, in the case of HL, a 0.5% annual fee for the value of any non-fund assets you hold inside the plan. This means that if you plan to hold mainly shares inside your plan, sippdeal’s plan is cheapest, while if you plan to hold exclusively funds, HL has the lowest costs.
These differences in cost are tiny compared with traditional pension plan charges, which are typically 1% to 2% a year. But you need to remember that the insurance company plans (and company plans) include the cost of fund management. If you buy funds inside a SIPP, you can end up paying annual charges of 1.5-2%. You need to select carefully- and maybe include low-cost index trackers - to limit these charges.
Use our active model portfolio…
Our Model SIPP Portfolio adopts an active approach, using growth-oriented funds run by top managers. An alternative - which I’ll feature in more detail soon - is to use Exchange Traded Funds and Index Tracker funds to create a low-cost ‘passive’ portfolio which will involve annual running costs of about 0.4% against the active portfolio’s 1.75%.
Since it’s possible to do this, the crunch question is: will an actively managed portfolio deliver an average annual return of at least 1.3% a year more than the passive portfolio, which it needs to do just to produce the same net return?
Most academics who have studied long-term performance would say that this is unlikely and that the passive portfolio will probably win. My own view is that the active approach can win, but only if you really devote care and attention to it.
So if you’re not prepared to take a regular, active interest in your SIPP portfolio, then use the passive approach - watch out for my new Passive Model Pension Portfolio.
