transfer charges stakeholder pension

27shackleton

I have a ten year old stakeholder pension with L&G. As someone else has alluded to, I feel the management charges are high - within the accepted level at 1% pa BUT for example last year I put in around £900, charges were £120, and by the end of the year the fund had grown by just over.....£900. So it seems to me that it costs a £ to make a £ (more or less). I have two questions - firstly, was year 14/15 just a poor year all round, or is my pension linked to poor returning investments? And secondly, my wife has a Civil Service pension which she informs me bears no management fees at all. How is this possible? Answers in plain English please; CSE Maths 1970 was the Everest of my numerical understanding....

bigadaj

Stakeholders are slightly old fashioned now, personal pensions or even sips would be cheaper, charges on these should be 0.5% or less.
So it's probably worth transferring, many options out there including cavendish, fidelity, Hargreaves lansdown, bestinvest etc

The charges you pay are based on ten value of the funds, so bear no connection to the amounts you pay in annually, so pay in nothing last year and the charges would still be £100+. assuming your pension value is £12000 then a £900 rise equates as around 7.5% which is about average for the year and also for long term returns.

The problem is that £900 per year isn't going to produce a significant sum for the pension, that £75 per month should be several times that level to get a decent amount on which to retire. Whether you look at annuities or drawdown then sensible income is typically around 4%, so a pot of £50000 would give you an income of only around £2,000 per year in retirement.

With respect to your wife's pension then that is a perk of the job, it's very valuable which many don't realise in such a situation, but something that is apparent when you compare your situation.

kidmugsy

27shackleton wrote: »

my wife has a Civil Service pension which she informs me bears no management fees at all. How is this possible? .

There are no investment management fees because there are no investments: there's just a promise that the taxpayer will stump up when your wife retires.

jamesd

There's no way for us to know whether £900 growth was good or bad because we don't know if that was on £9,000,000 of invested money or £90. 2014/15 was a petty good year for most investments. Assuming that the charges were 1% that would imply a pot size of £12,000. £900 growth on £12,000 of pot is 7.5%.

Long term growth of the UK stock market has been around 5% plus inflation so 7.5% including inflation is not at all bad compared to history. However the money may not be invested in a UK stock market tracker, it might be in a balanced managed fund or something else.

dunstonh

I put in around £900, charges were £120

It is not possible to have £120 charges against a £900 contribution on a stakeholder pension. I would suspect that the £120 of charges is against the full value.

So it seems to me that it costs a £ to make a £ (more or less).

That isnt how investments work. You have good years, negative years and nothing years. You have to average them out.

I have two questions - firstly, was year 14/15 just a poor year all round

Depends on your dates. It could range from a negative to a positive.

or is my pension linked to poor returning investments?

You havent mentioned the investments so we dont know what you have. However, the L&G stakeholder has nothing but mainstream funds. So, you wouldnt expect bad investments there.

And secondly, my wife has a Civil Service pension which she informs me bears no management fees at all. How is this possible?

Because it is a totally different type of pension. She is buying benefits which are largely paid for by the taxpayer. You are buying investments that are largely paid for by you.

So it's probably worth transferring, many options out there including cavendish, fidelity, Hargreaves lansdown, bestinvest etc

To be honest, given the poor level of understanding by the OP (which is not a criticism), i think any SIPP or platform based pension on a non-advised basis would not be a good thing to do. He clearly needs a simple pension product. Not an advanced investor option where the opportunity to really mess things up exists.

bigadaj

Dunstonh - I agree with your last point, and really a personal pension may well be better than a sipp but there appears little difference nowadays in terms of costs. However given the level of contributions and assumed pot size then an ifa won't provide an economic advantage, and placing into a fund of moderate risk will probably only be marginally better. Simplistically I'i don't think any adviser or provider is going to be desperate for that £120 a year, and even a 50% reduction in charges will add less than £100 annually to his pot, I wouldn't sniff at that but his only alternative is to undertake some education and research or accept his current situation.

dunstonh

really a personal pension may well be better than a sipp but there appears little difference nowadays in terms of costs.

If the charge was £120 a year then this suggests a pension fund of just £12,000 (a figure you would expect from someone in their 20s. Especially with a very low contribution level of £75). At £12,000 he is not going to be benefit much from fund based discounts yet as they dont really kick in until around £20k. However, if he is in his 20s, then time means it shouldnt be too long to get into the discounted range where 0.4% becomes quickly obtainable.

However given the level of contributions and assumed pot size then an ifa won't provide an economic advantage, and placing into a fund of moderate risk will probably only be marginally better.

An IFA could still be advantage on a fund of that size as long as there is more than say 6 years to go until retirement. A transactional (one off) piece of advice could reduce the charges and recover the fee within just a few years (hence the 6 year time period. If the fund was larger, then that time to recover would be quicker).

Simplistically I'i don't think any adviser or provider is going to be desperate for that £120 a year,

On a transactional basis it would be ok. On a servicing basis, no IFA should be interested and realistically, they shouldnt be offering it to someone on that amount.

As you said, the cost savings are going to be very small. So, until around £20k so it may be worth sticking with the stakeholder until it gets closer to that amount.