Can I move my Hargreaves Lansdown SIPP?

Question
I was quite suprised when I read the drawndown article in the Sunday Times today quoting you.

I have my SIPP with Hargreaves Lansdown Vantage and l always believed they were cheap. As a result I have a couple of questions...

The first is I am thinking of moving £120,000 into drawdown. Can I move that amount from HL and put it in drawdown with a new provider or do I need to leave it with HL?

Second, assuming I can move it I want to take the £30,000 tax fee lump sum but leave the rest of it. What would you recommend?Answer
To answer your first question, yes you can move your pension from Hargreaves Lansdown to another pension provider. You can do so either before entering income drawdown or after entering income drawdown with Hargreaves Lansdown (the former is probably more straightforward).

And yes, you can take £30,000 (i.e. 25% of the fund) as a tax-free cash lump sum, leaving the balance invested from which to draw an income.

Hargreaves Lansdown (HL) tends to be more expensive than some rivals when holding funds because it effectively pockets an annual platform fee out the charges you pay to fund managers. On average HL keeps about 0.6% of the commission it receives from fund providers after paying back an average 0.17% to customers as a ‘loyalty bonus’. So customers with commission paying funds are, on average, effectively paying an annual 0.6% fee for HL's services, which is high versus many competitors. The figures I supplied the Sunday Times reflected this.

HL will have to change its charging by April 2014, as will other platforms and discount brokers who haven't already done so, in line with new rules banning platforms/discount brokers from receiving payment for their services via fund managers. This will result in having to offer lower cost 'clean' versions of funds, which have no commission or platform fees built into charges, coupled with an explicit fee paid directly by customers for the service provided.

You may wish to wait until HL reveals its new charging before making a decision. It will be interesting to see what happens as HL would have to cut its profit margin somewhat and/or negotiate cheaper fund versions than the competition to look competitive on price overall.

Meanwhile, you might want to use my other site www.comparefundplatforms.com to get a feel for how the competition stacks up in terms of fund choice and cost.

Read this Q and A at http://www.candidmoney.com/askjustin/920/can-i-move-my-hargreaves-lansdown-sipp

Can I take AVC before company pension?

Question
I paid into an AA pension for 12 years plus AVCs to Equitable Life. Can I take the AVC to buy an annuity before drawing my AA Company Pension?. My year of birth is D.O.B 1955.Answer
Yes, in theory it's possible to take benefits from an Additional Voluntary Contribution (AVC) pension scheme before or after you take benefits from your occupational pension, provided you are age 55 or over (which you obviously are).

However, it all depends on whether your AA pension scheme rules allow this (just because HMRC rules do, it doesn't automatically mean your pension scheme does), so you'll need to check with the AA pension scheme administrator.

If the AA pension scheme does allow you to take the AVC before your AA pension then you have the option of taking 25% of the AVC fund as a tax free lump sum with the balance used to buy an annuity. It's the usual retirement gamble of receiving less income now but for longer or more in future for a shorter overall period of time. There's no right or wrong as such, it depends on how long you think you'll live and prevailing annuity rates. And, of course, how keen you are to get some extra income now.

Read this Q and A at http://www.candidmoney.com/askjustin/917/can-i-take-avc-before-company-pension

Will mortgage offers hurt my credit rating?

Question
My daughter and her spouse are looking to get a mortgage and recently had a first interview with Lloyds Bank. All went well and they were cleared to borrow more then they required, however they stated they will be seeking a number of offers and options from various lenders and the bank stated this could have a detrimental effect upon their credit rating which is very good at the moment.

Is this just a ploy or does it have any truth?Answer
Although various mis-selling scandals suggest banks have sometimes told half truths to win business, in this instance Lloyds TSB is very likely telling the truth.

When lenders look at your credit report (via an agency such as Experian), one of the things they might consider is how many applications you've made for credit. For example, they might deem someone who's made a lot of credit applications in a short space of time as high risk – the simple interpretation being you are trying to borrow a lot of money.

The key is whether seeking a mortgage offer is deemed to be an application and hence end up appearing as such on your credit report, or just deemed to be a quotation which is likely to leave your credit report unscathed.

In simple terms, asking a lender for the mortgage rate you're likely to pay should be classed as a quotation, hence safe. But asking a lender whether they'll lend you a specific amount of money will likely leave its mark on your credit report, even if it’s only a decision in principle.

Read this Q and A at http://www.candidmoney.com/askjustin/916/will-mortgage-offers-hurt-my-credit-rating

Repay mortgage or buy shares?

Question
My wife and I have a endowment policy maturing in December 2013 and is estimated to pay out £18,000.

We have a mortgage for £25,000 that is on a base rate of 2.5%. This is our only debt.

Is paying the mortgage off the best option or do I add to our 5,200 standard life shares?Answer
There is no right or wrong answer, it depends on whether you want to play safe or take risk.

Paying down your mortgage would be playing it safe and equivalent to a 2.5% annual return at current rates. Choosing to invest the money instead could result in a higher return or loss, depending on how it performs.

It boils down to which you are most comfortable doing.

Another option could be to reduce your mortgage and then set up a monthly investment with the money you save via lower mortgage repayments.

Finally, if you do choose to invest, maybe consider an alternative investment to Standard Life so you don't have all your investment eggs in one basket – assuming you don't already hold other investments. That way, should Standard Life shares dive in price for some reason your won’t be fully exposed.

Read this Q and A at http://www.candidmoney.com/askjustin/915/repay-mortgage-or-buy-shares

Good SIPP for holding cash?

Question
I have an existing SIPP, but am thinking of moving it.

I am trying to find a SIPP which is flexible enough to accept some or all of the investment into cash. I have checked on some of the platform providers websites, but haven't been successful in finding anyone who provides this service. Can you help with the names of some providers please.Answer
Low cost SIPP providers tend to be good value when you want to hold investments, but awful if you want to hold cash.

This is because cash rates (at the time of writing) are near zero, for no other reason than it's a nice earner for the SIPP providers (usually platforms) concerned. When you hold cash they'll place it on deposit and keep most or all of the interest for themselves. It's an annoying practice, although in fairness interest rates are low at present and maybe charges would have to rise elsewhere to compensate if they stopped making a profit on cash.

The one low cost SIPP provider offering semi decent rates is James Hay via its Modular iSIPP. (costing £180 a year plus up to 0.18% p.a. of investment value), giving access to four cash accounts via Arbuthnot Latham, Cater Allen, Close Brothers and Investec. You can view current rates here, not great but generally a fair bit higher than other low cost SIPPs.

If you want access to any savings account permitted to be held in a pension then you will need to use a more expensive 'bells and whistles' SIPP, for which you can expect to pay upwards of £500 per year.

You could instead choose to invest in 'money market' or 'liquidity' funds. These typically buy bits of paper from other financial institutions promising returns - which is good unless the promises turn out to be hollow, in which case you could lose money (as happened to some of these funds during the credit crunch). While not as safe as using a deposit account (with risk depending on exactly how the fund invests your money) such funds could be worth careful consideration where a competitive deposit account is not available, although returns can still be low after charges.

Read this Q and A at http://www.candidmoney.com/askjustin/914/good-sipp-for-holding-cash

Storage pod investment a good idea?

Question
I have a friend who has invested, through a broker, in storage pods. The guaranteed return in the first two years is 8% each year. Do you recommend such an investment for income investors?Answer
Investing in storage pods, or self-storage, isn't on the surface a bad idea. Demand for self-storage in the UK is high and managed well it can be quite a profitable venture.

The gist of these investments seems to be you buy a long lease on a storage unit or pod and the self-storage company handles renting it out and maintenance, in return for a fee.

However, as an investor there are a few potential drawbacks.

Firstly, the investment is unregulated, which means if someone runs off with your money then tough. You won't be able to fall back on the FCA or a compensation scheme and will instead have to take matters into your own hands which could prove expensive and ultimately fruitless.

Secondly, assuming the investment is bona fide, you will be reliant on the operations of the self storage operator concerned. If they are inefficient then occupancy could be low, hitting your rental income. And if they go bust your investment could prove worthless unless another operator takes over the management of the premises and your pod/unit, in which case they would probably negotiate different management fees. Things could get very messy.

And thirdly you may struggle to find a buyer in future if you want to get out.

Having looked around the web most of the adverts for storage pod investments lead back to a company called Store First Ltd, which operates several storage depots in the Yorkshire and Cheshire regions. While I have no reason to believe the business is anything other than proper, the potential issues I mention above could apply in a bad case scenario.

In simple terms it seems you buy a 250 year lease on a pod from £3,750 depending on size. Store First puts in place a 6 year agreement to rent and manage your pod, promising an 8% yield (after fees) in each of the first two years, with the option to extend the guaranteed return at the end of two years. When your pod is let you'll pay 15% of your rental income to Store First, as well as service and ground rent charges, basic details here.

Even if we assume occupancy is good, what happens if Store First goes bust or walks away after six years? You could be left with no rental income and an asset that's very difficult to sell on.

All in all, I think there are just too many potential downsides to make these types of investment appealing, but obviously you’ll need to investigate more closely and form your own conclusion.

Read this Q and A at http://www.candidmoney.com/askjustin/913/storage-pod-investment-a-good-idea

Are smart trackers worth considering?

Question
What will be the significance of the new 'smart trackers'?

Does the Schroder QEP US Core Fund fit into this category? And finally, if there is a future for these, what form will they take: fund or E.T.F?Answer
So-called 'smart' trackers sit somewhere between conventional tracker funds (which simply aim to mirror a specific index) and actively managed funds (where the manager aims to use their skill to beat the index).

The potential issue with conventional trackers is that many of the indices they track are 'weighted', that is larger companies dominate the index. So your money may largely be invested in just a few companies. There is also an argument that companies enter an index when they are expensive and fall out of an index when they are cheap, meaning trackers buy high and sell low.

Nevertheless, trackers tend to consistently perform better than many actively managed funds, suggesting the majority of fund managers are just not that good at their job and/or don't do enough to compensate for high charges.

Smart tracker type funds tend to take an index as a starting point but add some extra criteria on top. For example, they might select stocks based on dividend yields. In theory this sounds quite nifty, but in practice they might end up doing better or worse than conventional trackers, much like actively managed funds. Success depends on the criteria used, charges and how the technique fares in the market overall - selecting stocks based on dividend yield may do well when markets struggle, but lag when markets post strong gains.

The Schroder QEP fund range uses a lot of number crunching (called ' quantitative analysis') to select stocks from a wide universe, rather than the traditional hands on analysis approach used by many active managers. I wouldn't call these funds smart trackers as such since they don't tend to use an index as a starting point, they're more actively managed funds run by complex computer algorithms.

I think there is a future for funds using quantitative management techniques (although it’s not new, some have been around for years), but as with all actively managed funds there will be those that succeed and those that don't, based on the quality of their algorithms and market climate. The key, as ever, is not to place all bets on one investment technique.

As for funds or ETFs, we've already seen smart tracker type funds emerge in both and I'd expect that to continue, albeit ETFs are probably the more natural home if managers want to attract larger investors.

Read this Q and A at http://www.candidmoney.com/askjustin/905/are-smart-trackers-worth-considering