Vanguard Unveils UK’s Cheapest Self-Invested Personal Pension (SIPP)

Extremely welcome news from US fund manager Vanguard: the asset management giant – a pioneer of low-cost tracker funds – has released details of its new UK self-invested pension.

The big news is the 0.15% account platform fee, capped to a maximum of £375. Investors will still pay an on-going fund fee – for example, 0.22% on a LifeStrategy fund which blends equities and bonds on a 20%/80% split.

In the case of a LifeStrategy fund choice – Vanguard’s LifeStrategy funds are a highly diversified mix of bonds and stocks regularly rebalanced to reflect an individual’s investment goal and time horizon – the overall annual charge would work out at 0.37% a year (0.15% platform fee + 0.22% fund fee), well below industry average norms.

Investors have full access to 76 Vanguard funds and ETFs plus access to Vanguard’s Target Retirement Funds including the just-mentioned LifeStrategy range.

Massive long term savings

Tom Nielsen of Advice Bridge has crunched the numbers – and the potential savings look very significant he says.

Take a 50-year-old man on track for a retirement income of £20,000 including the state pension at 67, says Nielsen.

Even if he makes a minimal workplace contribution of an extra £100 a month and has existing pension savings of £200,000, switching from a mainstream provider charging 0.57% per year to Vanguard at 0.37% per year would yield him an extra £57,000 by the end of his life.

Small percentile points matter – a lot

This is a great move for thousands of ordinary investors and our clients, Nielsen adds.

The interesting thing is that this makes Vanguard self-invested platforms as cheap as some of the cheapest workplace pension funds for the first time.

He goes on: Although higher fees of 0.50%-plus may not look much on paper, the real-world outcome is huge long-term.

This is an ultra-low-cost pension from an established, high-quality player.

What’s not to like?

Vanguard will not charge any fees on transfers, valuation statements or exit fees.

For the moment this new Self-Invested Personal Pension (SIPP) is targeted at those building up a pension pot, rather than any drawdown service – to follow in the next tax year, hopefully.