Are SIPPs a better low cost option than stakeholder pensions?

Alliance Trust Savings, one of the country's leading SIPP providers, has shown that investors could benefit from the increased choice available within a SIPP while paying lower charges than many stakeholder pension plans.

Stakeholder pensions will be ten years old next year. They were launched in order to provide people access to a low cost pension option, and at the time of their launch they had an annual management charge (AMC) cap of 1%. After lobbying by providers of stakeholder pensions the cap was increased in 2005. The change meant that providers could charge up to 1.5% AMC for the first ten years and up to 1% thereafter.

Individuals who started a stakeholder pension in 2001 may be surprised to learn that they can have a SIPP with a wider choice of funds and the facility to include other investment options such as stocks and shares while paying an AMC of 1% or below. People who have accumulated a pension fund within a stakeholder scheme may assume that it is not possible to increase investment choice while ensuring an AMC cap of 1% or 1.50%.

The Alliance Trust Savings Select SIPP has an annual charge of only £75 + VAT and uniquely rebates 100% of the commission received from fund providers back to the individual's pension fund. This means that an effective AMC of 1% or below is achievable on many of the 1,400 funds that are available through the Select SIPP.

Unlike a stakeholder pension, the Select SIPP also offers individuals access to UK quoted securities, including investment trusts, AIM securities, gilts and other fixed interest investments.

Steve Latto, head of pensions at Alliance Trust Savings commented: "There is a common myth that SIPPs automatically mean higher charges compared to their personal pension or stakeholder pension counterparts. With over 1.8m stakeholder pensions in the UK, it is vital that these pension holders review both the existing charges that apply and the investment choice available. The Alliance Trust Savings Select SIPP could offer a real alternative to the standard stakeholder pension that often offers a restricted range of investment funds."