Charges £££ - FriendsLife - additional pension contribution... :(

newbiesaver55

So I thought I was doing the right thing by making an additional pension contribution of almost £2k incl tax for a previous tax year whilst I still can (14-15)...

But today I received paperwork from FriendsLife 'Post Sale Documentation' - buried in page 8 no less - saying that assuming mid-growth rate of 2.5% I could pay £789 in charges on this amount by age of 65. (Currently early 40s).

It's a 1% charge - stakeholder personal pension plan scheme.

This has come as a shock - have I done the wrong thing?! I have 30 days to cancel it and perhaps throw some £ down the nearest drain instead...! :rotfl:

Help!

alewin

Is that growth rate after the 1% charge or before.

Even if your original £2000 stayed constant, £20 a year charge over 25 years comes to £500. With their mid-growth rate, I'd say probably around the high £600's over 25 years.

newbiesaver55

after the 1% charges...

So is this normal? I am gobsmacked!

dunstonh

after the 1% charges...

So is this normal? I am gobsmacked!

What are you gobsmacked about?

A stakeholder pension cannot charge more than 1% p.a. So, having a stakeholder at 1% p.a. is not something that should surprise you.

buried in page 8 no less - saying that assuming mid-growth rate of 2.5% I could pay £789 in charges on this amount by age of 65. (Currently early 40s).

That is more likely the effect of charges if not taken and invested at 2.5% rather than the actual charges.

I'm struggling to see a problem here. Other than stakeholders being a largely obsolete product that is only suitable for a niche market.

kidmugsy

newbiesaver55 wrote: »

So I thought I was doing the right thing by making an additional pension contribution of almost £2k incl tax for a previous tax year whilst I still can (14-15)...

Eh? How can you make a contribution for 14-15 in 2017? Surely that possibility vanished years ago.

sandsy

That's 1% each year for 20 odd years. So if there was no growth, 1% this year would be £20..... for 20 years added together would be roughly £400 (ignoring charges previously paid). So with 2.5% (real) growth on your £2k, it's naturally higher.

The figure you are given also includes the return you've lost out on as a result of charges being deducted from your fund.

Asghar

How much total do you have in your pension with FriendsLife, not just the £2k you have added.

If it's say £50k then that's £500 per year assuming no growth, totaling £12500 over the next 25 years. That's normal and how charges work when investing in pensions and funds etc.
The growth however, in the long run, should be much more than the charges and therefore much better off.

bigadaj

kidmugsy wrote: »

Eh? How can you make a contribution for 14-15 in 2017? Surely that possibility vanished years ago.

That's certainly of more concern than fairly average if slightly expensive charges over many years to come.

newbiesaver55

Thanks for the replies...

Yep I was pretty surprised that over time almost 50% of my personal contribution, would be swallowed up in charges...proportionally it seems high. You'll just have to live with the fact that there are some very mathematically ignorant people around I guess!

May I not attribute the contribution to 14-15 then I take it...? It looks like I can make changes so no harm done if so. Unless FL really don't know what they are doing ...

Very interested to hear there may be a newer alternative to a stakeholder pension, dunstonh?

dunstonh

Yep I was pretty surprised that over time almost 50% of my personal contribution, would be swallowed up in charges

That is you misreading the projection examples. The regulator brought in the way they display these figures back in the 90s when nearly 100% of pensions had an agent or adviser to run through the illustration and explain things.

Nowadays, a lot of people DIY and dont have an adviser (and agents almost do not exist any more). However, the regulator still has the same requirements on illustrations and they are not consumer friendly.

Your savings accounts have a higher charge than the pension. Difference is that the savings account, you dont see it. The pension you do. Would you rather get 1% p.a in a savings account with no explicit charge mentioned or 7% p.a. after a 1% charge in a pension?

Very interested to hear there may be a newer alternative to a stakeholder pension, dunstonh?

Stakeholder pensions were introduced in 2001. By around 2006, personal pensions had changed enough to start being better than stakeholder on all but the smallest amounts. e.g. providers out there who can do 0.40% p.a. on £20k plus.

sandsy

newbiesaver55 wrote: »

Thanks for the replies...

Yep I was pretty surprised that over time almost 50% of my personal contribution, would be swallowed up in charges...proportionally it seems high. You'll just have to live with the fact that there are some very mathematically ignorant people around I guess!

You're not looking at it correctly. The figure is an indication of the amount you don't get back at the end of the investment period due to charges. So you can't compare it directly with the contribution you made at the start of the investment period. Comparing two financial values at different points in time makes no sense.