We'd like to remind Forumites to please avoid political debate on the Forum. This is to keep it a safe and useful space for MoneySaving discussions. Threads that are - or become - political in nature may be removed in line with the Forum’s rules. Thank you for your understanding.
We're aware that dates on the Forum are not currently showing correctly. Please bear with us while we get this fixed, and see Site feedback for updates.

So I'm thinking of starting with a Stakeholder Pension but....

having read about the high annual charges and hidden fees I don't know which company to choose.

I am self-employed, aged 41 and have a modest amount in a cash ISA (less than £5k). I can make a lump sum payment of £2k and thereafter £50 a month, going up to a maximum of £100. I would also like to bump up my pension whenever work is going well.

Having read about SIPPs and Stakeholder pensions I believe the latter would benefit me more, yet I'm astonished at the annual charges and other expenses of these.

For instance, I was looking at the Aviva pension which states that it will charge 0.90 annually on my monthly payments and 0.90 on my one-off payments - confused? The quote says that of my monthly payments, if they were worth 14000 by the time I am 65 I will have paid 2470 in deductions in total. For a single payment of 2000 they will deduct 601 in total.

I do not understand why they are deducting fees from both my monthly payments and my single lump sum payment - would they do this with other lump sum payments?

The fees are confusing and I am guessing that this would be the same with most other Stakeholder providers. I cannot get financial advice from Aviva unless I have a pension with them.

Can anyone shed any light on this? Is there a company which offers lower fees for their stakeholder pensions?
«1345

Comments

  • dunstonh
    dunstonh Posts: 118,574 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    having read about the high annual charges and hidden fees I don't know which company to choose.

    There are not hidden fees. So, disregard that. Charges are clear and disclosed.
    Having read about SIPPs and Stakeholder pensions I believe the latter would benefit me more, yet I'm astonished at the annual charges and other expenses of these.

    Stakeholders were good in 2001 when introduced but they are largely niche/obsolete nowadays running about twice the cost of equivalent personal pensions.
    For instance, I was looking at the Aviva pension which states that it will charge 0.90 annually on my monthly payments and 0.90 on my one-off payments - confused? The quote says that of my monthly payments, if they were worth 14000 by the time I am 65 I will have paid 2470 in deductions in total. For a single payment of 2000 they will deduct 601 in total.

    0.9% of your value. Not your contributions. A fund value of £14k would have a charge of £126. Less than a typical saving account at your bank.
    I do not understand why they are deducting fees from both my monthly payments and my single lump sum payment - would they do this with other lump sum payments?

    It isnt on contributions. It is on value.
    I cannot get financial advice from Aviva unless I have a pension with them.

    Use an IFA. It will be cheaper.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Yes but what will an IFA tell me?

    The way I see it and yes, bear with me here, I do not have a lot of options available to me. A SIPP is no good for someone on my low income. ISAs pay on average 1% which is rubbish for a pension. I am self employed so I can't get a company pension. What else can I do? A stakeholder pension is the only option I have.

    An IFA may be able to give me advice on which investments to go for, but what I really want to know is why the annual fees are so high, as you say. Assuming that I get 3.5% growth on a stakeholder pension and annual charges are 1% this reduces growth to 2.5% which really isn't anything to get excited about.

    An IFA is going to be invaluable for someone investing in medium to high risk, but can they help someone who is going for low/medium risk? Having looked at the funds available I was going to choose a mixed investment, a global bond fund and a gilt fund. I can swap and change these and I can get free financial advice from a company such as Aviva once I set up my pension.

    So, considering that I can get free advice from the company itself, all I really need is help choosing the company itself.

    Or am I talking rubbish? I am open to persuasion if you think an IFA will provide invaluable advice to me, but my thinking was that an IFA would be worth the fee for someone investing a lot more money than I have.
  • DISCLAIMER: Yes I am rubbish at maths and getting my head around charges, interest rates and so on but funnily enough I'm ok at economics and I do understand stocks, shares, bonds and so on. So go easy on me :)
  • dunstonh
    dunstonh Posts: 118,574 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    Yes but what will an IFA tell me?

    1 - which product to use
    2 - which provider to use
    3 - which investments to use
    4 - what you need and what you are likely to get with what you are going for.
    5 - it is cheaper than what you are looking at currently.

    ISAs pay on average 1% which is rubbish for a pension.
    cash rarely makes sense with long term planning anyway.
    What else can I do? A stakeholder pension is the only option I have.

    A personal pension is most likely a better option.
    but what I really want to know is why the annual fees are so high

    They are not. That percentage has to cover the cost of retail, fund management, regulatory and compliance issues (which takes a large chunk). Not many retailers run at 1% gross margin.
    Assuming that I get 3.5% growth on a stakeholder pension and annual charges are 1% this reduces growth to 2.5%

    Pension fund returns are posted net of charges. Even through the decade we have had, the most basic mixed equity funds have managed above 5% p.a. after charges. Looking at 2.5% net of charge is low.
    An IFA is going to be invaluable for someone investing in medium to high risk, but can they help someone who is going for low/medium risk?

    You are 41. You shouldnt be looking at ultra low risk. Low/medium is easily within suitability of an IFA.
    So, considering that I can get free advice from the company itself, all I really need is help choosing the company itself.

    Yet that tied sales advice is more expensive than non-sales advice from an IFA. Why do you want to pay more for getting less?
    Having looked at the funds available I was going to choose a mixed investment, a global bond fund and a gilt fund.

    Why? That doesnt seem a good idea for the timescale and its unlikely you are going to be that low in volatility acceptance. If you are then a lower equity level in a mixed asset fund would be better.
    I can get free financial advice from a company such as Aviva once I set up my pension.

    You are not getting free advice. You are paying for it in increased charges. An IFA will cost you but it can be taken from the pension and the charges will be lower.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Fair enough, when can you come round? :D
  • JoeCrystal
    JoeCrystal Posts: 3,250 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    Fair enough, when can you come round? :D

    :p Alas, he is not allowed to. You can however look for few local IFAs on unbiased.co.uk.

    Cheers,
    Joe
  • You will be relieved (or not?) to know that I have used a link provided by MSE to contact 3 IFAs in my area. However as most of the IFAs listed stated that they dealt with people whose personal incomes topped £25k pa I am not hopeful of a fast response from any of them.

    My worry is that my personal income is so low and the amounts I have to invest so trifling that they will simply ignore my pleas for advice. I have also requested that I pay a flat fee for their services.

    If no-one contacts me, then what do I do?
  • JoeCrystal wrote: »
    :p Alas, he is not allowed to. You can however look for few local IFAs on unbiased.co.uk.

    Cheers,
    Joe

    Yup, that is the website I used. I sent a nice message informing 3 IFAs who stated that they dealt with any level of wealth (good job really) informing them how much I earn, what my savings situation was, how much I have to put into a pension pot as a lump sum and how much I can afford to pay into it on a monthly basis.

    Look at my phone ringing off the hook................

    I feel unloved :(
  • I have made contact with the local authority where I used to work and they have confirmed that I paid into their pension scheme for a year, so I am now email to ask for a quote to transfer that. I have no idea how much that would be worth.

    I also paid into a French scheme which they said, at the time, would be transferable but I have absolutely no idea how to access that one.

    An IFA also just telephoned and I am arranging a meeting with him. The first half hour is free and after that it's either a flat rate of £300 (he mentioned going through all my finances and looking at Life Insurance which I don't want to do) or it can be taken out of any scheme I may choose. I think I would prefer the flat fee as that is what the MSE article on choosing an IFA recommends but £300 for me is quite a lot of money.

    I suppose it's worth it in the long run but we may have a very skint month in the meantime.
  • jem16
    jem16 Posts: 19,494 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    I have made contact with the local authority where I used to work and they have confirmed that I paid into their pension scheme for a year, so I am now email to ask for a quote to transfer that. I have no idea how much that would be worth.

    Very bad idea to do that so please don't even consider it! You will also need an IFA to sign off on a Defined Benefit transfer. Many will not even consider it at 99% of the time it is not in your best interests.

    My only concern is that under 2 years you are not allowed to stay in the scheme as a deferred member and must take a refund or transfer. Only in this case is the transfer the correct choice.
    An IFA also just telephoned and I am arranging a meeting with him. The first half hour is free and after that it's either a flat rate of £300 (he mentioned going through all my finances and looking at Life Insurance which I don't want to do) or it can be taken out of any scheme I may choose. I think I would prefer the flat fee as that is what the MSE article on choosing an IFA recommends but £300 for me is quite a lot of money.

    I suppose it's worth it in the long run but we may have a very skint month in the meantime.

    £300 may be a lot of money to you but it is pretty cheap for an IFA's advice. Taking it out of the scheme can be the most cost effective way as you won't pay VAT on it. I wouldn't necessarily go with the MSE article on that.
This discussion has been closed.
Meet your Ambassadors

🚀 Getting Started

Hi new member!

Our Getting Started Guide will help you get the most out of the Forum

Categories

  • All Categories
  • 348.3K Banking & Borrowing
  • 252.1K Reduce Debt & Boost Income
  • 452.4K Spending & Discounts
  • 240.9K Work, Benefits & Business
  • 617.2K Mortgages, Homes & Bills
  • 175.7K Life & Family
  • 254.1K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 16K Discuss & Feedback
  • 15.1K Coronavirus Support Boards

Is this how you want to be seen?

We see you are using a default avatar. It takes only a few seconds to pick a picture.