Choose to pay SIPP fee from the SIPP account

This idea is following up from this post:

Currently if the FT SIPP is charged outside the SIPP basic income tax payers loose a 20% discount while higher income tax payers loose a 40% discount.

For example let’s assume that I will always cover the FT fee with my monthly earnings so the fee is charged outside the SIPP it will come off my credit card and if it is within the SIPP I’ll make a new contribution to the SIPP to cover the fee.

A FT SIPP will cost me £10 a month from my annual earnings if this is charged outside the SIPP.

As a higher tax payer if this is charged within the SIPP it will cost me £6 per month instead (-40%).

This is because I can fund the SIPP with 80% of the amount £8 followed by HMRC that tops up 20% (£2) directly in the SIPP. Then on self-assessment I can claim back another 20% (£2) from HMRC.

So in the end from my yearly earnings the FreeTrade SIPP is costing me £120 per year as it stands but if it was charged inside the SIPP it would cost me £72 (60%) instead.

By having the fee charged outside the SIPP we are basically forgoing the tax advantages offered by a SIPP. When we drawdown from our SIPPs in the future we still have to pay Income Tax. This is why HMRC tops up SIPP contributions according to our income tax status.

The difference is £48 (40%) a year that I could use to make a new SIPP contribution or ISA investment for example.

The suggestion here is for this to be changed so that first FT attempts to take the SIPP fee from available funds within the SIPP account itself and on the absence of funds use a credit card instead as fallback.

Edit: Rather than make the change mandatory for everyone, clients should have the ability to choose if the fee is charged within the SIPP account or outside.

A. FT attempts to take the SIPP fee from available funds within the SIPP account itself and on the absence of funds use a credit card instead as fallback.

B. FT takes the SIP fee from a credit card outside the SIPP.

If possible could you do this with Freetrade+ fee as well please? Ultimately it is still a service related to the SIPP so that feels reasonable.

It sounds like a tiny thing but this could reduce the household (x2) cost of Freetrade from £408 to £245 (+FX) without impacting Freetrade at all. That might tip the balance for few more people on the fence.

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There is a class of people for whom your analysis does not hold.

Those who use up all of their allowance would prefer to pay fees from outside of sipp as that effectively becomes extra money they can keep in the sipp wrapper without sacrificing investment performance.

For example if one only has £4,000 SIPP allowance and they contribute all of it, they cannot top up any more money into SIPP and thus would be forced to sell investments to cover the fees and thus experience drag on their performance. Hence paying fees from regular funds is beneficial, and there is no tax loss as the full tax allowance has been used up.

Also inheritance issues may come into effect. Funds in the SIPP are not part of the estate, whilst money outside of it are.

I prefer to see pure investment growth in the accounts, and pay fees from non-wrapper money.

That’s a good point, I guess the better user story would be:

Allow the user to choose card/SIPP balance to fund their fees (SIPP & Freetrade+) from.

I can’t really think of a case where you’d want to fund from ISA/GIA except for convenience, but maybe expanding the options to also cover that would be a consideration.

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You can make contributions to your SIPP of up to £40,000 per tax year. If someone has only £4,000 of allowance left that means this person has already contributed £36,000 in this tax year.

I’m not sure this person is the targeted audience of FT. This would probably be a very high earner.

FT caters for the small investor. The discount through the pension relief helps.

But if someone is really concerned about this then I suppose options could be provided:

A. FT attempts to take the SIPP fee from available funds within the SIPP account itself and on the absence of funds use a credit card instead as fallback.

B. FT takes the SIP fee from a credit card outside the SIPP.

Edit: I have changed the title from should to have the ability to choose which option.

Not everyone. There is reduced annual allowances, and tapered allowance, and carryover, and money purchase allowance…

Also one only receives tax brake to the extend of taxable income. Thus most will not have 40k of contributions eligible for tax benefit.

One might have three years of carryover and thus able to contribute 160k, or only have 4k allowance in many circumstances. Some of which can be retrospective.

It’s not just about high earners.

I.e. if one is basic tax payer making £15k they get tax relief on just £2.5k max. If they manage to put that away into SIPP they are better off paying fees from their regular cash.

In fact FT seems to target quite high value pots, potentially with very small top ups.

At £120 a year, FT is only competitively priced for pots of more than £80,000. As otherwise Vanguard is a better option with 0.15% account fee.

Honestly FT fee structure and tax implications are a lot more nuanced than what you imply. And not everyone’s tax position matches your scenario. Only a marginal subset.

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Continuing the discussion from Transfer SIPPs from other providers:

I’m with prudential -

  1. Any one know what sort of exit fee I would have to pay?
  2. I must be able to pay from the exiting pension pot though so pay in the sipp because I don’t earn enough to pay in any more have FT set this up yet?

Please start a separate topic, as it is not related to how Freetrade could/should charge Freetrade account fee.

Also many large providers have many types of accounts and it will be between you and Prudential to figure out your exit fee and how to pay them. So I don’t think you will get a straight forward answer about it. Even if somebody else did similar transfer with Prudential.

Did you read the 2nd ?

The second question makes no sense. At the moment FT only takes payment for SIPP account using debit cards… As in outside of the sipp.

Exit fees are processes by Prudential. Talk to them if they can accept payment by selling funds in the sipp or take an outside of the sipp payment…

So yeah, I did read your questions and nobody here can help you with your queries and the idea/feature requested in this topic is irrelevant to your sipp questions.

Is FT considering allowing the fees to be deduct from SIPP account? if not, any idea why not?

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Because the current process is very clean and works well - Debit card. No need to change it

Of course there is a need to change it. That’s why most competitors debit SIPP fees from the SIPP, for tax reasons.

Although I actually voted for this option I wouldn’t use it but I do think it would be handy especially if someone hit hard times and the monthly payments became an issue.

Of course, it is gets complicated, you would need to keep cash in it or FT would then have to decide what to sell and then that may end with negative reactions.

This makes me think that both “with and without” have good arguments and TBH the FT team probably made the correct choice for people in the long run.

Edit - I hate direct debits so would prefer to pay in advance by the year for SIPP and Plus but that’s a different discussion :joy: