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Vanguard gets ready to muscle in to SIPP investing in 2020
Pensions and retirement ages have been in the headlines recently as the Women Against State Pension Inequality or WASPI took their case to court, unfortunately for them, the courts found that the government had not acted illegally in raising the age at which they would qualify for their state pensions.
Whatever the rights and wrongs of this case (and we can see merits in the arguments of both sides) it serves to show that we should not rely on the government to keep us in our old age
And that we should do whatever we can to invest and save for our retirements. An increasingly popular way to do this is through a SIPP or Self Invested Pension Plan.
Just this week one of the world’s largest fund managers, the US giant Vanguard, announced the launch of its own SIPP which will go live in 2020
Like many products from the Vanguard group the Vanguard SIPP is designed to be simple to use and operate, has low fees and modest minimum investments, which will start at a hundred pounds per month. SIPP clients will also be able to add lump sums to their plan from £500 and upwards.
What can you invest in with a Vanguard SIPP?
Vanguard will allow its SIPP customers to choose from a portfolio of 76 funds and ETFs
The company which was founded in 1975 by legendary US investor Jack Bogle pioneered the concept of the index tracker fund and has grown to be one of the biggest players in the world of low fee passive investment strategies.
According to Vanguard’s marketing literature, its SIPP platform will run at less than half of the cost of those offered by its dearest rivals in the space, and some 40% cheaper the average SIPP. The calculations reflect the fees paid by SIPP investors on a £40k contribution.
Low management fees can help to boost long-term investment returns so Vanguard will be hoping to win market share from existing providers when the new product goes live in early 2020
How does the Vanguard product stack up against two established rivals from Hargreaves Lansdown and Interactive Investor?
The Hargreaves Lansdown SIPP offers lower minimum monthly investment and lump sum amount than Vanguard and these are set at £25.00 and £100 respectively The Hargreaves Lansdown SIPP also has a much wider choice of funds for SIPP investors to choose from some 2500 funds in fact compared to Vanguards 76, though Vanguard might argue that theirs is a case of quality over quantity.
However, Hargreaves Lansdown also offers access to individual UK and overseas shares as well as bonds and investment trusts and so has a much bigger investment universe overall.
The Hargraves Lansdown SIPP charges 0.45% as an annual management fee, that compares to Vanguards 0.15% management charge which is also capped at a maximum of £375 per annum. In both cases, there will be additional transaction fees on top.
Interactive Investor has the widest coverage and offers its SIPP clients access to an investment universe of more than 40,000 individual UK and global equities, it also tales a different approach to its fee structure than its peers.
Any major differences for the new Vanguard SIPP account?
One of the key differentiators of Interactive Investors SIPP is the fact that it charges fixed monthly admin fees of just £9.99 per month, regardless of the size of the plan
Interactive Investor’s SIPP transaction charges are capped at £7.99 per trade. The group offer clients a monthly credit of £7.99 to be used to help offset transaction fees. Interactive also has cashback plans for those transferring existing SIPP schemes to them, from other providers, and sums ranging from £100 to £4000 are potentially available. Other benefits on offer include free investment analysis, data and tips.
Each of these SIPP providers has its own plus points and which one you choose from these three or those from many other providers will likely depend on your own individual circumstances and criteria such as your age, the size of your SIPP, if you currently have one, how actively you trade it and across what instruments?
There is no one size fits all solution here but Vanguards entry into the market place next year seems likely to keep the pressure up on management fees and costs whilst increasing customer choice
Two themes that are the very heart of what we do here at the Good Money Guide.
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Richard founded the Good Money Guide (previously Good Broker Guide) in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.