SIPP savers have been warned to be wary of small platform fees and unclaimed tax relief after new analysis suggested a higher-rate taxpayer could be up to £138,948 worse off because of fees and taxes.
New analysis from ETF investing platform InvestEngine shows a saver putting away £500 a month could be more than £18,000 worse off just by paying 0.25% in platform fees.
For higher-rate taxpayers, platform fees combined with missed tax relief could mean they are £125,000 worse off after 30 years, the research published during Pension Awareness Week highlights.
The firm pointed out that SIPPs have increasingly become a mainstream pension product, with FCA figures highlighting that 5.3m people now hold a SIPP with more than £567bn invested in them.
It warned that platform fees can create a significant drag on retirement savings when compounded over decades. The firm’s modelling shows that an illustrative basic-rate taxpayer starting with £20,000 in their SIPP and contributing £500 a month could have around £18,100 less after 30 years as a result of a platform fee of just 0.25% a year. At 0.45%, the potential difference rises to around £31,900.
For higher-rate taxpayers who are also entitled to additional pension tax relief, the potential difference can be substantially greater if that relief goes unclaimed. The analysis suggests that a higher-rate taxpayer contributing £500 a month and claiming and reinvesting their additional pension tax relief could build a pot worth around £517,286 after 30 years, assuming no platform fee.
If the additional tax relief was not claimed and reinvested and the investor instead paid a 0.25% platform fee, the illustrative pot would be around £392,140 – a difference of approximately £125,146. At a 0.45% platform fee, the potential difference rises to approximately £138,948.
Table One - Illustrative pension value after 30 years
|
Annual platform fee |
Basic-rate taxpayer [contributions] |
Higher-rate taxpayer [contributions plus tax relief claimed and reinvested] |
||
|
|
£300/month |
£500/month |
£300/month |
£500/month |
|
0% |
£265,563 |
£410,241 |
£329,789 |
£517,286 |
|
0.25% |
£253,341 |
£392,140 |
£253,337 |
£392,140 |
|
0.45% |
£244,048 |
£378,338 |
£244,030 |
£378,338 |
Table Two: Amount lost due to platform fees and, where applicable, unclaimed higher-rate tax relief (claimed and reinvested) after 30 years
|
Annual platform fee |
Basic-rate taxpayer £300/month |
Basic-rate taxpayer £500/month |
Higher-rate taxpayer £300/month |
Higher-rate taxpayer £500/month |
|
0.25% |
£12,226 |
£18,101 |
£76,452 |
£125,146 |
|
0.45% |
£21,533 |
£31,903 |
£85,759 |
£138,948 |
|
Source: Calculations undertaken on Pension pot calculator on InvestEngine. |
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Bob Tronson, head of pensions at InvestEngine, said: “The growth of SIPPs shows that millions of people want to take control of their retirement. Taking control isn’t just about deciding what to invest in. It’s also about understanding what fees you're paying and what tax relief you're entitled to.
“Pensions are a long-term product, which means small changes today will deliver surprisingly large improvements over time. A fraction of a percentage point in annual fees over decades can cost tens of thousands of pounds. Higher-rate taxpayers not claiming the additional tax relief they're entitled to will miss out on even more.”