Best SIPP for drawdown?

Question
There seems to be quite a bit of information available regarding the best low cost SIPP provider when at the pot building stage, but little or nothing comparing SIPP providers when at the drawdown stage.

I am about to go into drawdown with a small pot of around £ 75000 (after the tax free lump sum has been taken), I intend being a low activity investor and I would like to know which provider/s you think is/are the best for this size of pot when in drawdown.Answer
The information is on my comparefundplatforms website, but tucked about via the ‘charges’ link on the results page for each SIPP provider due to a lack of screen space. Creating a new page showing the various platform charges for all providers is on my bulging ‘to do’ list, so hopefully it’ll see the light of day soon.

In most cases the best value SIPPs at the pot building stage will remain best value during drawdown - your money is still mostly invested hence a combination of low fund and platform charges will probably still have the biggest impact on your bottom line. But, I agree, it's important to check any additional charges that apply during drawdown.

Anyway, the following SIPPs may prove worth considering in your situation - they're generally cost effective re: fund and normal platform charges.

Charles Stanley Direct
Setup income drawdown: Nil
Calculate income limits: £120
Income payment annual charge: £60

Interactive Investor
Setup income drawdown: £180
Calculate income limits: £180
Income payment annual charge: £150

Alliance Trust Savings:
Setup income drawdown: £240
Calculate income limits: N/A
Income payment annual charge: £90

Sippdeal
Setup income drawdown: £180
Calculate income limits: N/A
Income payment annual charge: £90

Bestinvest
Setup income drawdown: Nil
Calculate income limits: £120
Income payment annual charge: £100

Hargreaves Lansdown has relatively low drawdown charges (as follows), but tends to be rather less competitive re: overall fund/platform charges.
Setup income drawdown: Nil
Calculate income limits: £90
Income payment annual charge: Nil

Good luck with your decision.

Read this Q and A at http://www.candidmoney.com/askjustin/837/best-sipp-for-drawdown

Is now a good time to invest in funds?

Question
Is there a site where you can get buy or sell advice for funds like you can with shares, a lot of the suggested funds already seem to be at a peak and I wonder if this is the best time to buy.Answer
There are some sites that publish decent fund research, for example Bestinvest and Citywire, but they’re more focussed on the capabilities of underlying fund managers than market timing.

Interactive Investor has a vibrant community of investors swapping tips and while orientated towards shares, there are conversations about funds too that might be more what you’re looking for.

However, funds are generally more representative of the wider market than shares in individual companies. For example, let’s suppose company X announces a big drop in sales and its share price plummets by 10%. If you own the share you’ve just lost 10% on paper. If it’s held in a fund you own that also invests in 49 other companies in equal proportions the fund would fall just 0.2%. And if we assume the company is small and other share prices flat the main stock market index will barely move at all.

So funds are arguably less relevant re: hot tips for short term gains and more a bet on markets in general (obviously most funds focus on specific markets) and, if actively managed, the manager running the fund.

Is now a good to buy in general? I’ve been quite pessimistic about stock markets in general for a couple of years now and they’ve generally risen, so maybe I’m not the best person to ask! My concern is that prices have been more pushed up by Central Banks around the world pumping a fortune into markets than improved economic fortunes and I’m not convinced this is sustainable. Also, with interest rates so low some investors have been tempted into stock markets in the hope of getting a worthwhile return, again helping to support prices in an otherwise difficult climate.

I wouldn’t necessarily avoid investing altogether if you’re prepared to sit tight for 5-10 years, but maybe now is not the time to be placing any big bets unless you’re feeling very brave.

Read this Q and A at http://www.candidmoney.com/askjustin/836/is-now-a-good-time-to-invest-in-funds

Beware fund platform exit charges

Competition between fund platforms continues to hot up, with some very good low cost deals available. But will you be penalised for moving away from a platform with uncompetitive charges?.

The good news is platforms must allow you to transfer your investments 'as is' (called 'in-specie' or 're-register') to another platform of your choice, provided the same funds are obviously available (more on that in a moment). The bad news that some charge an arm and a leg for doing so.

Ways to transfer

Let's start with the basics. There are two was to transfer your investments from one platform to another: either sell them, transfer cash then repurchase on the new platform, or transfer them across in-specie.

Sell & repurchase

While straightforward, you might incur dealing charges when selling and/or repurchasing the investments. Plus, your money could be out of the market for at least several days. Furthermore, if you realise gains outside of an ISA or pension they might be taxable.

When transferring an ISA or pension in this way make sure you let the new platform handle everything, otherwise you risk losing your ISA allowance or breaking pension rules.

In-specie

Even simpler still as your investments are moved across exactly as is. Since they're not sold there's no issue re: tax or being out of the market. However, the transfer can end up taking a few weeks and platforms usually charge a fee, per fund/share, if you want to move away from them.

Note: In-specie transfers are only possible when exactly the same fund version is available on the platform you're moving to. For example, if you hold Fund X 'A' units the 'A' units must be available on the new platform.

Exit charges

Two types of charge may apply. An account closure fee, which applies whichever of the two transfer methods you use, and a charge per fund/share for in-specie transfers. The charges for a range of popular platforms are listed below:

Platform	Close Account			Transfer In-Spicie (per fund/share)
	Direct	ISA	SIPP
Alliance Trust Savings	Nil	£60	£150	£20
Barclays Stockbrokers	Nil	£60	£90	£30
Bestinvest	Nil	£60	£150	£25
Cavendish Online (FundsNetwork)	Nil	Nil	£150	Nil
Charles Stanley Direct	Nil	Nil	£150	£10
Clubfinance	Nil	Nil	N/A	£10
Hargreaves Lansdown	Nil	Nil	£90	£30
Interactive Investor	Nil	Nil	£360	£15
rPlan (Cofunds)	Nil	Nil	N/A	Nil
Share Centre	Nil	Nil	Nil	£25
Sippdeal	Nil	Nil	£90	£20
TD Direct Investing	£5	£60	£90	£35

All charges include Vat at 20% were applicable

Are these fees a rip-off?

When you move away from a platform there is some admin work involved, so perhaps it's only fair they charge a nominal fee for the service. However, a quick look at the above table suggests some fees are far from nominal and perhaps more intended to discourage customers from leaving than cover costs.

For example, I've received emails from disgruntled Hargreaves Lansdown customers shocked at being charged hundreds of pounds to transfer their portfolios in-specie to cheaper competitors. The savings elsewhere were such that HL's charges were worth paying, but it's a bitter and arguably unfair pill to swallow. And TD Direct Investing is more expensive still.

In my view £10 per stock (i.e. fund or share) for in-specie transfers would be a fair price point. It should more or less cover admin costs and isn't too painful for investors. Although Cofunds and FundsNetwork (in this context rPlan and Cavendish Online) currently do it for free, suggesting that perhaps these charges should just be scrapped altogether, period.

A similar argument holds true for account closure fees. Interactive Investor easily scoops the wooden spoon here with a whopping £360 charge to close its SIPP.

Your views?

I'd be interested to hear your views or experience regarding these charges. Please share below.

Read this article at http://www.candidmoney.com/articles/268/beware-fund-platform-exit-charges

Will paying son's university costs reduce future IHT bill?

Question
I am looking to reduce the IHT liability for my two children (both now over the age of 18) upon my death. My husband passed away a few years ago leaving a sizeable estate behind to me.

After our combined NRB, I anticipate a sizeable IHT liability remaining. I am looking at several ways of reducing the eventual IHT liability. But one area which I can find no information on and would appreciate your advice is as follows:

One of my sons is still in full time education. I note that HMRC allow me to provide maintenance for children over the age of 18 still in full time education - as I understand it, this falls outside of IHT and will not impact upon any other allowances.

Can I confirm the following:

What counts as maintenance?

I assume paying his university fees certainly counts, what about providing food and accommodation?

What limits are there on this and for how long?

For example, if I decide to buy him a flat to live in, will this qualify as maintenance - and what happens when he stops being a student?

Can I pay his rent to live in a flat?

Many thanks in advance for any advice you can provide on the matter!Answer
HMRC doesn't give a clear definition of maintenance, but in practice it means covering education costs and reasonable living expenses. So yes, university fees definitely count, as would rent and an allowance for food and general living costs.

You can make the maintenance payments for as long as your son is in full-time education and there's no explicit limit. But, as ever with HMRC, it boils down to what's considered reasonable (should they ever take a close look). For example, rent on typical student accommodation and a few hundred pounds a month to cover food, books, bills and other living expenses should be absolutely fine. But put him up in a penthouse apartment with a hefty expense account and HMRC may well object, deeming that some of the money should be treated as a gift (in which case you'd need to live for at least 7 years thereafter for it to fall outside of your estate).

Buying your son a flat wouldn't count as maintenance, assuming you are the owner it would remain in your estate. If you buy the flat for your son and he owns it then it would be treated as a gift, hence fall outside your estate after 7 years provided you're still alive. But you wouldn't be able to receive any benefit from the flat, for example living there in future without paying full market rent, otherwise HMRC would view it as a gift 'with reservation' and effectively void it.

If you pay rent and university fees it's best if you pay them directly. And for living costs perhaps pay a set amount each month into your son's bank account. Aside from keeping things simple, it also provides a good audit trail should HMRC ever want to take a closer look.

Another IHT allowance that might be relevant is gifts from normal expenditure immediately falling outside of your estate. This means regular gifts made out of your taxable income rather than capital. So, for example, if you have surplus pension/investment income you can afford to give away, this could be passed to your children without having to wait the usual 7 years for it to fall outside of your estate.

As I'm sure you're aware gifts totalling £3,000 a year fall outside your estate immediately, as do As many gifts of £250 per person you wish to make each tax year..

If you want to make large gifts and retain some control over when and how your children get access to the money or assets you can use trusts. But they make things more complex and don't get round the 7 year rule previously mentioned.

Best wishes and good luck with your planning.

Read this Q and A at http://www.candidmoney.com/askjustin/832/will-paying-sons-university-costs-reduce-future-iht-bill

Leaving Hargreaves Landown will slash costs - any catch?

Question
I have £500K in ISA and NonISA funds administered by Hargreaves Lansdown. It seems that the higher trail commission rebate at Cavendish is worth an extra £1600 pa.

This is a high price for the "benefit" of HL research, marketing and HL TV!

I will be transferring to Cavendish Online. Cavendish state they do not charge a platform fee or switching funds.
However I thought Cavendish used Funds Network which do seem to charge platform and switching fees. I'm left wondering whether I pay anything for these if I am with Cavendish?

I also want to know if Cavendish Online will pay trail rebate on my existing funds which I reregister to them as well as any new funds?
Answer
I agree, £1,600 is a high price for the HL 'benefits' you mention, so transferring may well be a prudent move.

However, you should be aware that Hargreaves Lansdown charges £30 (inc VAT) per fund or share if you want to move them 'as is' (technically called 'in-specie') to another platform - more than any other platform that I'm aware of. It's a bitter (and arguably unfair) pill to swallow, but nevertheless the potential savings elsewhere should still justify the transfer.

You can avoid this charge by selling your funds, transferring the money as cash and repurchasing funds on the new platform (for ISA investments make sure you complete a transfer form with the new platform and let them handle it, else you could lose your ISA benefits). However, this involves your money being out of the market for at least several days - from which you may profit or lose out due to market movements. And you could end up with a capital gains tax bill on the non ISA funds if sold at a profit.

Moving onto Cavendish Online, they use the Fidelity FundsNetwork platform and rebate all initial and trail commission, so a typical 1.5% annual fund charge will fall to about 1%.

FundsNetwork is paid a platform fee from the fund charge, probably about 0.25% of the 1% in the above example. And from this FundsNetwork pays Cavendish Online 0.05%, i.e. £50 a year per £100,000 invested.

So FundsNework and Cavendish Online are making money, but it's incorporated into the fund charge. There are currently no extra charges for switching funds or if you want to move to another platform in future, i.e. what you see is what you get. And yes, you can enjoy trail commission rebates on existing funds as well as new investments.

Given the size of your portfolio, you might also want to consider Alliance Trust Savings and Interactive Investor, who usually offer lower annual fund charges than Cavendish Online and charge a fixed annual platform fee rather than a percentage (more favourable for larger portfolios). Unlike Cavendish Online they charge dealing fees for funds, but they might still prove cheaper overall.

If you haven't already please do try out my www.comparefundplatforms.com website, it will give you a much clearer idea of how costs stack up for the more competitive platforms. Unfortunately Hargreaves Lansdown refuses to send me the necessary fund charge/rebate data, so it's not possible to include them. My guess is they don't want their customers finding out they're not as cheap as they like everyone to think.

Read this Q and A at http://www.candidmoney.com/askjustin/831/leaving-hargreaves-landown-will-slash-costs-any-catch

Are fund prices affected by demand?

Question
I know that the price of shares increases and decreases according to the supply and demand so if more investors are buying a share the price increases. Is this the same for OEICs?

Or is the buying price dependent on the performance of the fund and not on whether more people are buying it or selling?

Thank you very much for assisting in this query.Answer
The simple answer is no, it isn't the same for Oeics, although demand could still potentially affect the price of units - I'll come onto this in a moment.

The reason share prices are so sensitive to investor demand is that companies have a fixed amount of shares in issue. So if you want to buy shares in company X you'll have to pay the price that someone else is willing to sell at. If there are more potential buyers than sellers this will likely push up price to the point sufficient shareholders are tempted to sell and meet buyer demand. And if more sellers, the price will likely fall until sufficient buyers are tempted to once again balance demand and supply.

Funds (including Oeics) are different because fund managers can simply create new units or cancel existing ones to satisfy investors wishing to buy or sell. So the price is set by the value of the underlying investments held in the fund - not the market for that fund.

However, there are still instances when very high demand for a fund or a lot of existing investors wishing to sell can affect price to an extent.

Let's suppose there are way more investors wishing to sell than buy units in Fund X. The fund manager will have no option but to cancel units and correspondingly sell underlying investments in the fund. If the manager must sell a significant quantity of shares this might reduce the price he/she can get for them on the stock market, in turn reducing the fund's price.

Furthermore, in the above example the fund will incur dealing charges when selling the underlying investments. In a unit trust the fund recoups these by reducing the sell price a little to reflect the cost (technically called widening the bid-offer spread), but as Oeics can only have a single buy/sell price the additional cost is recouped via a 'dilution levy' on those investors selling units. Note: the fund manager doesn't benefit from these manoeuvres, they're implemented to protect the remaining investors in the fund from losing out.

The above also applies when fund managers need to create a large number of new units to satisfy demand - i.e. the buying price will rise to reflect the cost of a dilution levy may be used for Oeics.

Read this Q and A at http://www.candidmoney.com/askjustin/830/are-fund-prices-affected-by-demand

How to invest my pension when approaching retirement?

Question
I have a pension plan made up of several funds, a mixture of equity and bonds. I am in my late 50s and prefer to remain cautious in case the stock market crashes.
If you wanted to de-risk your own pension plan, how would you do this in your pension portfolio? ( You cannot just take out the money as cash).

What type of funds would you personally switch to yourself in today's market if you wanted to de-risk?Answer
It largely depends on the extent you wish to de-risk.

The 'safest' option is to move fully into cash, but as you'll likely earn very little interest your pension pot would most probably shrink in real terms as it won't keep pace with inflation.

Fixed interest, i.e. gilts and corporate bonds, tend to be the next choice if you're comfortable with some risk, but less than investing in stock markets. Of course, there are no guarantees and you could still lose money, but worth considering provided you invest at the safer end of the market (i.e. bonds issued by robust governments and blue chip companies).

If you plan to buy an annuity then gilts can also make sense from the point of view that insurers use gilts to back their annuities. If you invest in gilts now and the price plummets over the next 5 years your pension fund will drop in value, but this may be offset (to some extent) by higher annuity rates because the gilts used to back your annuity have become cheaper to buy.

You might also consider protected pension funds offered by the likes of MetLife. I'm not a big fan as the cost of protection tends to be quite high, but they can suit individuals who want to retain stock market exposure while limiting their downside. For more info see my answer to this http://www.candidmoney.com/askjustin/427/metlife-guaranteed-products-any-good previous question.

If I were around 7 years away from retiring (wishful thinking!), concerned by markets and planning to buy an annuity at retirement I'd probably hold about a quarter of the fund in cash, half in gilts/high quality corporate bonds and the balance split between equity income funds that invest in well established cash rich companies and absolute return funds that I think might actually stand a chance of working. As retirement approaches I'd probably shift the balance more towards cash and gilts. Were the stock market outlook not so uncertain I'd probably start with less in cash and more in equity income and absolute return funds.

Another option might be for your keep your pension invested post retirement and draw an income instead of buying an annuity. In this case you can probably adopt a longer investment horizon which might leave you feeling more comfortable with a less cautious investment strategy.

Please bear in mind I can't provide advice to your specific situation, but hopefully the above general pointers will prove helpful.

Read this Q and A at http://www.candidmoney.com/askjustin/829/how-to-invest-my-pension-when-approaching-retirement