A simple example will serve to demonstrate our point.

Provider A charges £300 per annum for administering a SIPP. They also ‘earn’ a 1% return on the cash balance held with the SIPP Bank Account.

Client A set up a SIPP and arranges to transfer £250,000 from existing benefits to the new SIPP. The transfer is in cash, and is received on 1 January. On 1 February, the monies are invested elsewhere.

The Client will actually see a charge of:

£300 plus (1% x £250,000 divided by twelve months) = £508.33

Consider what might happen if service is poor, and monies remain in the account for far longer.

A low ‘headline’ fee does not necessarily mean that the client is going to be better off. In actual fact, in many cases, where they have large cash balances, or keep investments held in default fund platforms, they will be paying far more to their provider than they ever envisaged.

Remember, if you are choosing a SIPP Provider, take time to understand the full extent of their charging structure, and do not simply rely on fee comparison examples as the means by which you judge the cost of the product.