Stakeholders and IFAs

[Deleted User]

I'm a 45 year old married woman whose youngest child has just graduated and has a job! As a consequence we can (at last) start putting some money into a pension for me. My husband is a deputy head of a large school and has a full teacher's pension.

I know it's very late, but I don't intend to take the pension until 65 at the earliest. I wondered about a Stakeholder pension as I only work part-time, they're low in cost and 20 years isn't a lot of time to save for a decent pension. However, both IFAs I saw recently were very "anti" them and tried to persuade me to take out a different type of personal pension, arguing that, although the charges would be higher, there would be a wider range of funds to choose from and more chance of stronger growth than with a Stakeholder.

However, a friend has told me that IFAs get very little commission for selling stakeholders and that's why they rarely recommend them. This seems a bit harsh! But am I being naive?

I feel that I need to know before I can make a decision. Can anyone enlighten me?

Also, in my position, does a Stakeholder make sense? Or does a pension make sense at all? Should we be looking at some other way of saving instead?

EdInvestor

You are a basic rate taxpayer I assume? If so, the ISA will be a better tax wrapper - the investments within are the same.

Make sure you keep your NI record up to date for the state pensions as well. The two of them add up to quite a lot, and they are index linked.The income in retirement from the ISA will be tax free, while your allowance should cover the state pensions.

dunstonh

However, both IFAs I saw recently were very "anti" them and tried to persuade me to take out a different type of personal pension, arguing that, although the charges would be higher, there would be a wider range of funds to choose from and more chance of stronger growth than with a Stakeholder.

Totally correct reason. Stakeholder funds tend to be quite limited in options and generally do not perform on par with professionally managed funds.

However, a friend has told me that IFAs get very little commission for selling stakeholders and that's why they rarely recommend them. This seems a bit harsh! But am I being naive?

Your friend is being a nubbins. For example, Norwich union pay double the commission on stakeholder than they do on a personal pension. Others pay exactly the same.

The biggest difference with most providers is that the stakeholder only offers stakeholder funds whereas the personal pension offers the stakeholder funds (on exactly the same charges level) and a larger range of professionally managed funds which may cost more. In these cases, there is little point doing a stakeholder as you are just limiting yourself with fund choice.

I rarely do a stakeholder pension now. I wouldnt have one and its only those that absolutely insist on cheapest possible that I use them. However, if you pay cheap, you get cheap.

Also, in my position, does a Stakeholder make sense? Or does a pension make sense at all? Should we be looking at some other way of saving instead?

A pension will provide a higher income than an equity ISA in retirement (assuming same investment funds). However, it is not as flexible as an ISA and it depends on whether you want the flexibility or not. Some people need the tie in that a pension offers and that can often be a deciding factor.