Vanguard Launches UK's Cheapest Pension

US investment giant shakes up Self-Invested Personal Pension (Sipp) market with 0.15% fee, capped at £375

Holly Black 19 February, 2020 | 10:37AM
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Investment giant Vanguard has launched the UK’s cheapest pension account.

The Self-Invested Personal Pension (Sipp) will charge investors just 0.15% of the value of their assets a year, with a cap of £375.

A Sipp is an investment account individuals can use to save for their retirement. Because these are personal rather than company accounts, they are often used by self-employed workers or those looking to top-up their pension contributions beyond what they save into their workplace scheme.

Sipps have grown in popularity since the introduction of the Pension Freedoms in 2015, since when investors have had more flexibility over how they use the money they have saved for retirement.

Typically, these accounts are offered by fund supermarkets such as AJ Bell and Hargreaves Lansdown. Now Vanguard has moved into the space, significantly undercutting the fees charged by its competitors.

Currently, investors will only be able to use the account to accumulate money – that is, to save into the pension. Drawdown capabilities, allowing investors to withdraw their money, are expected to be available in the 2020/21 tax year.

Accounts can be opened with a lump sum as low as £500 or by setting up a regular investment plan of £100.

The annual charge is 0.15% of assets with a cap of £375 and, crucially, the cap will apply across all of a customer’s accounts – so if they also have an Isa or general investment account with Vanguard, the maximum total fee for an investor will be £375.

In comparison, Hargreaves Lansdown charges customers 0.45% on the first £250,000 they have invested; AJ Bell charges 0.25% and Charles Stanley Direct 0.35%. Interactive investor charges £10 per month.

Game-Changer?

Mark Preskett, portfolio manager at Morningstar Investment Management, says: "The Vanguard Sipp really is a game-changer in terms of price and it will be interesting to see how competitors react. An account charge of 0.15% is a big saving compared to some of the major players in the market."

The £375 fee cap is, he adds, a significant move and could lead to big savings for investors with larger amounts saved. 

Indeed, analysis by research group the Platforum found that an individual saving £40,000 a year into a Sipp (the current annual maximum pension contribution) would pay £172 a year in charges, compared to as much as £396 on the most expensive platform.

Jeremy Fawcett, head of Platforum, says: “Pension investing is a long-term activity and when fees are low, outcomes are significantly improved. The Vanguard Sipp is one of the lowest cost options in the market, especially for those at the beginning of their investing journey.”

However, unlike fund supermarkets, which offer investors access to thousands of funds from a number of providers, Vanguard will only offer access to its own products; this comprises 77 funds and ETFs.

Preskett adds: "For some investors, the limited investment universe will be a red flag. But an investor could build their own portfolio of Vanguard funds from its range or use its LifeStrategy funds, both of which would be perfectly reasonable options for the majority of investors." 

US-based Vanguard is best known for its wide range of low-cost tracker funds. It has been a driving force in lowering costs on passive funds in recent years. The Gold-rated Vanguard US Equity Index fund, for example, which tracks the US stock market, charges just 0.1% - equivalent to £1 for every £1,000 invested.

Its LifeStrategy funds are also popular with investors – these are ready-made portfolios with a specified proportion of their assets in equities depending on how much risk an investor wants to take. The Gold-Rated Vanguard LifeStrategy 80% Equity Fund, for example, has 80% of its assets in equities and 20% in fixed income.

Sean Hagerty, head of Vanguard, Europe, says: “[This account is] designed to reduce the cost and complexity of saving for retirement. An individual’s savings often represent a lifetime’s effort, yet many investors and retirees lose out on their own hard work to high fees and charges.”

 

 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Holly Black  is Senior Editor, Morningstar.co.uk