But investors are restricted to the company’s own range of funds, only a few of which are actively managed
The fund manager Vanguard has thrown the gauntlet to the rest of the pensions industry by launching the cheapest self-invested personal pension (Sipp) in the UK.
Industry experts are forecasting that the new Sipp, which the index-tracking giant launched this week, will attract an influx of money from investors who are disillusioned by poorly performing funds held on high-charging platforms.
Holly Mackay, the founder of Boring Money, a price comparison website, says that a significant number of the investors she talks to have reported that they intended to move from their present platform once the Vanguard Sipp had opened.
“In the past they may have been deterred by inertia and a dislike of the extra admin involved [in moving platforms],” she says.
“But I think this time the good reputation of Vanguard, the very low fees and the fact that the market leader among platforms is now walking-wounded, courtesy of [the disgraced fund manager Neil] Woodford, will mean that we see a significant shift of assets into Vanguard at the expense of all the major DIY fund platforms, but notably Hargreaves Lansdown.”
Pension savers will be able to sign up for the new Vanguard Sipp by investing from as little as £100 a month or a lump sum of £500. They will then have access to 77 funds, including low-cost index trackers and exchange-traded funds, which operate like trackers, but are shares traded on a stock exchange. The range also includes some actively managed funds as well as Vanguard’s Target Retirement and Life Strategy funds.
Vanguard says that if you combine its platform charge of 0.15 per cent with the annual charge of 0.06 per cent on one of its cheapest tracker funds, the Vanguard FTSE 100 Index fund, you are getting a Sipp investment for the rock-bottom annual charge of 0.21 per cent, which is cheaper than most other financial groups’ platform charge alone.
It commissioned research by Platforum, an independent research company, to examine the cost of holding a Sipp with Vanguard compared with the cost on 14 other platforms. It found that the total annual charge for holding £40,000 in a Vanguard Target Retirement fund would be £172 on Vanguard’s platform, but would rise to £283 for the average platform and £396 for the most expensive platform.
The big drawback with the Vanguard offering is that you are restricted to its range of funds and cannot access any of the thousands of other unit and investment trusts on the market. It also has a limited number of actively managed funds so if you favour those it may be worth looking at other platforms, which have a much wider selection.
Source: Holly MacKay of the Times, February 2020