Robo advisor Moneyfarm launches pension: what you need to know about costs, investments and risks

Moneyfarm has become one of the first robo-advisors to offer a SIPP. Here’s everything you need to know.

What is Moneyfarm?

Moneyfarm is a robo-advisor. This means it uses algorithms to assess your risk profile and match you to an investment portfolio. Those portfolios are built and monitored by experts.

The firm invests in mainly passively managed investments such as exchange-traded funds (ETFs) in order to keep costs down for clients.

Find out more about robo-advisors

What is a SIPP?

A Self-Invested Personal Pension, or SIPP is a private pension which you manage yourself. Moneyfarm has become one of the first robo-advisor firms to offer a SIPP to clients.

Customers will get the benefit of “easy transfers, simplicity and low-fees,” according to Moneyfarm. It will “empower customers to make the right decisions with their wealth to ensure financial security in retirement.”

What are the fees?

The Moneyfarm Pension has a tiered fee structure based on how much you have invested across all your accounts with them – so it would cover the balance of your pension, ISA and general account.

Annual fees start at 1% if you have less than £10,000 invested, falling to a minimum of 0.72% if you hold more than £2.5 million with Moneyfarm.

How do the fees compare with rivals?

The fees are quite pricey, especially for a firm that supposedly avoids the expense of actively-managed investments and wealth managers.

“The charging structure looks quite expensive at 1% for a non-advised offering,” Darius McDermott, managing director at Chelsea Financial Services, told Money Marketing.

In comparison, AJ Bell’s SIPP has an annual management charge of 0.25% on balances up to £250,000 and Hargreaves Lansdown has no annual management charge, but fund charges of 0.45% a year on holdings up to £250,000 falling to 0% on portfolios of over £2 million.

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What about ‘target date functionality’?

Moneyfarm states that another big benefit of its pension is it will have target date functionality.

This means you enter your anticipated retirement date and as it approaches the portfolio asset allocation will automatically adjust to reduce risk as your retirement approaches, so there is less chance of a sudden market shock shrinking your pension’s value just at the point when you need it.

This is a vital part of pension planning, and one that is often overlooked, by doing it automatically Moneyfarm will help its clients to protect their pension pot.

However, the pension freedoms mean that many pensioners don’t intend to withdraw their pension pot when they hit retirement age.

In the past, most people would have to withdraw it to buy an annuity, but these days many pensioners choose to leave a large amount of their pension invested, taking an income from it instead.

This means automatic de-risking of the portfolio could have an adverse effect on their retirement plans by moving their pension into lower-risk, lower-return investments too soon.

Our verdict

Your pension is the most important investment you will make, with your pot needing to support a retirement that can often last decades.

Relying on computer programmes to correctly manage your pension pot has significant drawbacks.

Firstly, as mentioned above, you could find it automatically de-risks your investments before you needed it too. Secondly, MoneyFarm mainly invests in tracker funds, which means the investments will never outperform the market.

You are also paying a premium for a robo-advisor over many more traditional pension firms that offer SIPPs.