Stakeholder vs personal and questions about funds

carl916

Hi

I’m looking to start a pension investing £200 pm with a view to increasing this in the future or finding other means to financially secure my retirement. My view on risk is medium to high.

I don’t want the worry of constantly monitoring my pension’s performance and I was fairly set on getting a stakeholder pension, but after reading though this forum, some suggest a personal pension could be better. What benefit could a personal pension offer over a stakeholder pension given the amount being invested?

The AMCs look straight forward but I’ve noticed companies such as Cavendish Online offering better AMC rates on a product than the companies that provide the product; does this simply come down to the various funds on offer thereby making the AMC somewhat negligible?

If it all comes down to the funds on offer how do I go about comparing funds? Can I select more than one fund? If so, is this advised?

Would an IFA be advised to give access to more funds and, more importantly, advice?

Many thanks, Carl Gilbert

dunstonh

I don’t want the worry of constantly monitoring my pension’s performance and I was fairly set on getting a stakeholder pension, but after reading though this forum, some suggest a personal pension could be better. What benefit could a personal pension offer over a stakeholder pension given the amount being invested?

A pension is just a tax wrapper. It doesnt make or lose money. Where you invest is the single most important thing. Yet you dont care about that.

Personal pensions generally offer the stakeholder range of funds at stakeholder charges but also external funds from the major fund houses. This allows you to mix and match your funds with the cheap stakeholder and better external funds. Some personal pensions have charging structures which can be a lot cheaper than stakeholder if you have a period to retirement in excess of 20 years.

The AMCs look straight forward but I’ve noticed companies such as Cavendish Online offering better AMC rates on a product than the companies that provide the product; does this simply come down to the various funds on offer thereby making the AMC somewhat negligible?

Buying direct allows the company to keep the bulk or all of the commission for themselves. Buying from an IFA allows the IFA to decide what terms they want to sell the product to you. Cavendish are IFAs but operate online via execution only where you pick the product type and funds and they dont take any commission which lowers the charges. Instead you pay a fee.

If it all comes down to the funds on offer how do I go about comparing funds?

It takes knowledge, time and a willingness to do it. You cant just throw open a web page and pick from a list. You need to match your risk profile and understand how the funds are managed. You need to consider an investment strategy. Of course, you could just do the whole thing random. Its the choice you have to make.

Can I select more than one fund? If so, is this advised?

Yes and absolutely yes.

Would an IFA be advised to give access to more funds and, more importantly, advice?

If you go to an execution only IFA like cavendish you will get a limited range of pension plans but it will be the cheapest way to buy the pension. If you go to an advice IFA, it will cost more in charges (no more than buying direct from the provider) but you can get the funds recommended.

At the end of the day, buying financial products through advice or DIY is like many other things you can do yourself. Do you service your car or do you pay to get it serviced? Do you decorate yourself or fo you pay a decorator? etc etc. If you can do the job yourself and you have the time then go DIY. If you cannot do it yourself but try it you could end up bodging it up.

EdInvestor

Choosing funds:

https://www.citywire.co.uk/Funds/Home.aspx

Has an excellent rating system going back 10 years.

Also good fund information here:

https://www.h-l.co.uk

If you want top quality funds, take a look at a their low cost SIPP pension.

dunstonh

If you want top quality funds, take a look at a their low cost SIPP pension.

Which is more expensive than a stakeholder and many personal pensions and designed for the experienced investor. It isnt that low cost either as its only the intial charge that is discounted. In the scheme of things, that barely has any impact in your overall return.

jamesd

carl916, personal pensions generally have a broader range of investments and those tend to be particularly better at the medium and high risk side than the stakeholder pensions, so that tends to suggest that a personal pension is more likely to be most suitable for you.

While you say medium to high risk you also say that you don't want to manage the pension much so that suggests that finding an IFA to do that for you may be useful to you.

I suggest that you read Ok then - How do I choose a S&S ISA to get an idea of what a sector allocation is and what an IFA should be doing. Then it's really time to hunt for one who will do that work, preferably one who does a lot of investment work. The services should include:

• Initial sector allocation using Watson Wyatt or comparable method.
• Investment selection advice within the sectors.
• Annual rebalancing.
• Advice on fund changes if a fund manager changes.

Personally I like the new model advisor (NMA) charging basis for this because it relies on ongoing commission paid out of the fund annual charges, as opposed to the traditional model that sometimes takes most of the money up front and leaves the advisor with less incentive to do the ongoing work that you're after.

You should not choose only a single fund. You should be looking to use at least one fund per fifty pounds and more if the pension allows that, particularly if doing a sector allocation, which may well involve 10-15 funds. If an advisor suggests a single fund at your level of contributions, pick another advisor.

Dunstonh is correct that you can beat SIPP fees with personal pensions for the same funds, undercutting them by perhaps 40% on AMCs (say 0.8% instead of 1.5% for execution only). The key factor is whether the personal pension or stakeholder has the funds you want and that becomes less likely as you move up the risk scale, but there are some really good personal pensions now, so this is changing.

The direct sales are often set up so that they don't undercut the resellers, so you shouldn't be surprised to see execution only IFA's like Cavendish charging lower prices without investment advice.