Fans of Vanguard (Vanfans? Guardinstas? Fanguards [1]?) have waited years for the fund giant to launch its own low-cost SIPP for UK investors.
The Vanguard Personal Pension was originally expected shortly after the company’s direct investment platform [2] hit the UK in May 2017.
However the SIPP launch was delayed [3] several times, for undisclosed reasons.
It’s understandable the US-headquartered company wanted to get its British tax and pension law exactly right – no easy matter – never mind fine-tuning the business sums. But you do wonder if the delays have caused some diehard Vanfans to delay pension contributions for longer than they would have?
Regardless, the end is in sight. Like a child on an interminable holiday trip to Wales who finally spots the uprights of the Severn Bridge, we’re not there yet – the SIPP won’t arrive until 2020 – but we can now see where we’re going.
To summarise from Vanguard’s latest update [4]:
- Vanguard’s SIPP will launch in ‘early 2020’; pension withdrawals will not be possible until 2021.
- The account fee will be 0.15%.
- There will be a cap of £375.
- That cap will apply across all holdings in one name on Vanguard’s direct platform, except JISAs (so your SIPP, ISA, and general accounts).
- You can invest from £100 a month, or lump sums of £500 or more.
- The SIPP will offer 76 funds and ETFs, all from Vanguard.
- There will be no fees for SIPP set-up, contributions, transfers in or exits, dealing in funds, reinvesting income, valuation statements, account closure, death processing, or divorce.
- Restricted ‘bulk’ ETF dealing will be free, but if you want to trade ‘live’ you’ll pay £7.50 a pop.
- There will be the usual annual fund costs docked from your returns. You’ll also be on the hook for internal fund transaction costs, as is standard with funds.
Vanguard offers the following comparison on the cost of investing £40,000 into a Vanguard Target Retirement Fund [5] with its platform, compared to investing with the SIPPs of 14 rival platforms:
[6]Fees-y win: £40k annual contribution across platforms compared.
Obviously we’re quoting numbers straight from the company here, not our own sums. It looks very competitive for contributions so far though.
As for drawdown mode [7], Vanguard says:
The Vanguard Personal Pension will also be competitive for investors who want to enter drawdown over the age of 55, once this option is available in the 2020-21 tax year.
Simply put, there will be no additional charges for going into drawdown in the Vanguard Personal Pension. […]
[Research company] Platforum ran the numbers for an investor with a £210,000 sum1 [8] in a Vanguard Target Retirement Fund, looking to draw down 4% a year, after fees and charges, for 10 years.
Investors using the Vanguard Personal Pension in this scenario would have £3,975 more remaining in their pot compared with the highest cost SIPP in the market, having saved £5,089 in fees to withdraw the same amount of money.
We stan Vanguard
While we’re proudly independent here at Monevator, our focus on simple, low-cost investing and broad index tracker funds makes it hard not to come across as raving Guardinistas when it comes to most of Vanguard’s products.
The Vanguard Personal Pension isn’t going to buck that trend.
We’ll reserve our final judgement – and filling in the blank spot on our comparison table [9] – until the rubber meets the road next year. But this does look like being an instant table-topper among the ‘percentage fee charging’ SIPP platforms.
My co-blogger The Accumulator points out the Vanguard SIPP should be particularly welcomed by younger or newer investors with smaller pots, as the low charges will extend the threshold at which you’d even need to consider switching to a flat-fee offering. And then there’s the fee cap to factor in, too.
Investing commission-free in ETFs also sounds splendiferous, provided you can cope with the bulk-dealing times Vanguard offers – and as a passive investor, why wouldn’t you?
That said, it’s not perfect; it only offers Vanguard products.
While in practice this will give nearly everyone all the choice they need to construct a low-cost passive retirement portfolio, it’s not amazing from the perspective of diversifying against the (extremely remote) possibility of some sort of systemic company or platform failure.
Vanguard is one of the biggest asset managers in the world and a SNAFU that caused some sort of permanent hit to your capital is pretty unthinkable. But we’re a paranoid lot [10] around here.
A slightly more likely (though still very unlikely) issue would be something like delayed access to your money in a Financial Crisis 2.0. At least by diversifying between platform provider and funds you potentially have a bit more cover.
Of course you can always get around this by running two SIPPs – one with Vanguard and another with a third-party and non-Vanguard funds. And having all your money on any single platform from any company gives you a single point of failure risk.
Will you be in the vanguard?
There’s no rush to decide exactly what to do.
For one thing, the Vanguard Personal Pension is probably still a few months away. Plenty of time to think.
Moreover, your existing platform may well decide to cuts costs ahead of this launch.
In the very long-term it’s going to be hard for most rivals to compete with Vanguard on costs alone, just because of the economy of scale advantage enjoyed by the industry’s megalodon [11].
Competitors may choose instead to trumpet choice or other variables. Still, the collapse in share dealing commission in the US recently gives a good example of how quickly costs can fall if everyone gets religion.
- Cited as the median pension in payment for a 65-69 year old. [↩ [16]]