personal finance

Vanguard to launch UK’s cheapest pension


Vanguard, one of the world’s largest fund managers, is set to launch the UK’s cheapest private pensions early next year, throwing down the gauntlet to its competitors and fuelling expectations of a price war. 

UK consumers have long awaited the company’s self-invested personal pension (Sipp). Vanguard had planned to roll out a pension product soon after the launch of its UK consumer investment platform in 2017, when it first became possible to invest directly in its range of tracker funds directly via the Vanguard stocks and shares Isa. 

However, the asset manager said it had taken longer than expected to build a pensions service that would meet customer needs by having simple functions and offering value for money.

The Vanguard Sipp will charge an annual account fee of 0.15 per cent, capped at £375 per year. This compares favourably with rival UK platforms, which charge around 0.35 per cent on average — and the account fee and cap will apply across all of an individual’s holdings on the Vanguard Investor platform.

Investors in the Vanguard Sipp will be able to choose from 76 funds and ETFs offered by Vanguard including its Target Retirement Funds and popular LifeStrategy fund range. Customers will be able to invest from £100 a month, or a lump sum of £500.

Although investors will pay fund charges and fund transaction costs, unlike many platforms, Vanguard will not charge fees for setting up an account, making a transfer or an annuity purchase.

Initially, the Sipp will only be open to investors building up a pot, not those who have started drawing down a pension. Pensions experts said it offered very good value to customers with small pension pots. 

Analysis by consultancy Platforum found that the Vanguard pension will be the lowest priced Sipp on the market for the average British pension holder who has not yet started drawing an income, who has a pot of £40,500.

Richard Bradley, research director at Platforum, predicted it would prove popular among “more engaged” and younger investors, who have a strong focus on cost. He anticipated these investors may be encouraged to transfer their holdings to Vanguard from other platforms — particularly as Vanguard’s LifeStrategy funds regularly appear on “most bought” fund lists on AJ Bell Youinvest, Charles Stanley Direct, Fidelity Personal Investing and Interactive Investor.

“What remains to be seen is how many investors are prepared to invest on a service that only offers Vanguard funds,” he added. “The success of the [Vanguard] Isa suggests that many are.”

As of November 30, more than 75,000 customers had signed up for a Vanguard Isa with assets on the platform now worth more than £2bn. However, the platform does not offer the Lifetime Isa, a hybrid product that allows under-40s to save towards a property or pension. 

Holly Mackay, founder of consumer website Boring Money, said Vanguard’s pension offering was likely to spark a price war among platforms.

“I think this does change the landscape,” she said. “If I ran a competitor platform, I’d be very nervous. Most pensions cost more and also have fairly complicated fee models. This one is cheap and simple — a good, yet unusual, combo in financial services.”

Vanguard said it had decided to launch in two phases so those building a pot can use their tax-free allowances before the end of the current tax year. It expects to add drawdown capabilities during the 2020-21 tax year, but has delayed this to protect customers from the risk of transfers not completing before the financial year end in April. 

Mark Polson, founder of platform research consultancy, the Lang Cat, agreed that Vanguard’s offering would “disrupt” the industry and encourage private investors to pay more attention to cost. But he cautioned that price was not the only factor investors considered. The largest investment platform in the UK, Hargreaves Lansdown, is also one of the most expensive.

“It’s quite easy to keep costs down if all you do is sell your house investments,” he added. “But the British investor has demonstrated they are willing to pay a premium for a good service experience.”

For some investors, being able to access the whole of the market would be more important than price alone, he said.



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