Stakeholder pensions and Cavendish Online website: questions & queries

Suzkin

Hi,

I haven't contributed to a company pension scheme for several years, due to unavailability and being on a very low income (national min. wage), not because I have squandered any funds on leisure or pleasure. What's worse is that I'm in my early 40s, and I don't have much savings either.

However, I think I should seriously contribute something to a stakeholder pension but am a bit confused.

On the Cavendish Online website (mentioned by Martin):

- in the section 'Stakeholder Pension' why is it giving Scottish Widows a higher 'AMC Annual Savings' than Standard Life - especially as both offer 100+ funds?

- What does 'Annual Savings' actually mean? In the section 'How to apply', step 4 p.2 states that "stakeholder pensions and personal pensions do not pay renewal commission". What actually does this mean?

- Is it possible to put a lump sum (say £3,600) into one years allocation for a stakeholder pension, or is there a monthly limit?

- what is the limit: £3,600 of my money, or is it less, like £2800 & tax relief bumps it up to £3.6k?

- How do you choose a provider, and how do you choose the funds? If I opt for the providers 'default' funds, can I change any of them, and at any time?
Am I supposed to monitor company performance regularly? I don't think I could handle this!

- Other than 'cash' funds, is there another slightly 'better' way of managing the money? I say this as I think cash funds are short-term, and I'm wanting security of capital, but with slightly better performance. Does this make sense?

- When is the stakeholder pension year? April - April or Jan to Jan.

All advice very welcome, and thank you.

dunstonh

- in the section 'Stakeholder Pension' why is it giving Scottish Widows a higher 'AMC Annual Savings' than Standard Life - especially as both offer 100+ funds?

Neither stakeholder offers 100+ funds. Both have some annual management charges. Scot Widows pay slightly more commission than SL so maybe the rebate is making it cheaper.

- What does 'Annual Savings' actually mean? In the section 'How to apply', step 4 p.2 states that "stakeholder pensions and personal pensions do not pay renewal commission". What actually does this mean?

Annual savings doesnt seem to be the best way to decide. It looks like its based on amount of commission rebated to lower annual management charge.

When upfront commission is taken, this is normally in place of renewal commission and not as well as.

- Is it possible to put a lump sum (say £3,600) into one years allocation for a stakeholder pension, or is there a monthly limit?

Its £3600 of 100% of your income whichever is higher. It doesnt matter how you pay it.

- How do you choose a provider, and how do you choose the funds?

You decide how you want to invest and where then pick the pension provider that gives you those investment options.

If I opt for the providers 'default' funds, can I change any of them, and at any time?

You can but default funds are often generally poor and if you do it this way you may find the provider you have chosen doesnt offer the funds you need to meet your investment aims.

Am I supposed to monitor company performance regularly? I don't think I could handle this!

Yes it is your responsibility or that of your adviser if you use one.

- Other than 'cash' funds, is there another slightly 'better' way of managing the money? I say this as I think cash funds are short-term, and I'm wanting security of capital, but with slightly better performance. Does this make sense?

cash barely keeps up with inflation so is not an ideal long term solution. Risk is not an on/off situation. Cash carries risk as well. Risk of inflation. Risk is measured on a sliding scale. It isnt a choice of no risk or gung ho. There are a world of options in between.

- When is the stakeholder pension year? April - April or Jan to Jan.

Stakeholder is just a defined charging structure for simplified product. The same limits apply to personal pensions and SIPPs and other individual pension plans. It is based on tax year.

Suzkin

Thank you Dunstonh,

I shall also ring Cavendish direct and ask them some questions.

I'm a bit surprised: with a company pension (I was on final salary), you just leave the decisions over fund management etc to the employer but with stakeholders - available to everyone - there seems to be more onus on the individual making the big provider decisions. How can say someone who is on a low wage, maybe previously unemployed supposed to know about fund management, and which sector to back?! I'm aghast..

DavidLaGuardia

Suzkin wrote: »

Thank you Dunstonh,

I shall also ring Cavendish direct and ask them some questions.

I'm a bit surprised: with a company pension (I was on final salary), you just leave the decisions over fund management etc to the employer but with stakeholders - available to everyone - there seems to be more onus on the individual making the big provider decisions. How can say someone who is on a low wage, maybe previously unemployed supposed to know about fund management, and which sector to back?! I'm aghast..

Cavendish is an execution only broker designed for people who have some idea of what they want to invest in and hence want to save on the cost of advice.

Those with a basic knowledge would go for a managed fund where the investment choice between indivudal assets is left up to the pension company but you still have to make a choice among these funds (note in this sense managed denotes type of general fund, all funds are managed).

If you your car breaks down and you have the knoweldge to fix it you can buy the parts and save on labour, but if you have no idea what you are doing you go to a mechanic. If you need advice, then you need to go to an IFA who offers it. It may mean charges are raised where the IFA takes commssion but these are limited on a stakeholder pension and some times paying a little extra gets you a more beneficial result.

dunstonh

I shall also ring Cavendish direct and ask them some questions.

Cavendish are execution only IFAs (on this service). They wont give you any advice. They can answer factual questions only but will do nothing that is close to advice.

I'm a bit surprised: with a company pension (I was on final salary), you just leave the decisions over fund management etc to the employer

The employer didnt manage it. They paid administrators to do it and the scheme absorbed the costs or the employer paid them.

but with stakeholders - available to everyone - there seems to be more onus on the individual making the big provider decisions.

You are going execution only and cutting out the individual that makes the decisions. If you cannot make those decisions then you are best not cuttin out the adviser.

How can say someone who is on a low wage, maybe previously unemployed supposed to know about fund management, and which sector to back?! I'm aghast..

If you dont know or cannot do something yourself you get someone to do it for you or you learn how to do it yourself or make a bodge job.

David gives a good comparative example.

One of the risks of this site is that it sometimes encourages people to go with the cheapest option and not the best option. We know that isnt Martin's intention but it can be a perception by some that saving money at all costs is the aim. The cost of getting it wrong is going to be more expensive than the small amount of charges you save by doing it yourself. So, if you cannot do it, get an IFA in to do it for you.

Suzkin

Thanks to you both - yes, against the advice of a friend (ha...), I think I'm going to pay for some advice. At least I'll have made an informed decision, and pensions have such implications, I think this would give me peace of mind.

dunstonh

You dont need to directly pay for the advice. For stakeholder pensions, its often worth just going with the old fashioned commission option as it really doesnt make much of a difference until you get to larger fund values.

Make sure the adviser you see is an IFA. Not a tied agent from your bank or similar.

against the advice of a friend (ha...),

its best to know your limitations. I pay for decorators, plumbers and electricians when necessary because I cannot do those things. If I tried, I would bodge it so using someone is money well spent.

Suzkin

If I go for 'commission' (as opposed to up-front fees) then will I be paying some kind of interest on this? Like as in a mortgage, when providers offer to add their fees onto the mortgage but this means paying extra in the long term by way of compounded interest?

How might commission be calculated? Does it depend on the amount invested? I suppose I'll need to ask each IFA.

Yes - once I've been placed on the 'correct' footings (also aided by yourselves of course, with your wisdom!), I'll feel a lot better.

Suzkin

Just to clarify: If an employer offers access to a Stakeholder provider, then are the fees paid for by the employer (in a round about way)?

dunstonh

If I go for 'commission' (as opposed to up-front fees) then will I be paying some kind of interest on this? Like as in a mortgage, when providers offer to add their fees onto the mortgage but this means paying extra in the long term by way of compounded interest?

The provider pays the commission but your annual management charge is increased to cover that commission. However, you are talking about 0.3-0.4% a year of the fund value. It will take about 15-20 years for you to be worse off than doing it execution only. However, decent advice about picking the right pension and funds should be worth more than 0.3-0.4%.

To put it in perspective. I did an investment last week and within one day it had covered that cost of advice.

Just to clarify: If an employer offers access to a Stakeholder provider, then are the fees paid for by the employer (in a round about way)?

If the employer has a pension scheme which they will also pay into then you should jump at that as its free money to you. However, if they have a pension scheme they dont pay into then it is highly unlikely to be a scheme with special terms and will usually be set up on full commission.

Suzkin

They are offering a 'Group Pension scheme' and they do not offer to put anything in it. So, does this mean that I would be paying for the fees for myself? If so, then I might as well shop around and get some advice etc. Would the conditions/benefits be the same regardless of being 'Group' or not? #btw: thanks so much for your help.
:beer:

Another question: in the sam way we talk about isas - e.g. 1 yr fixes 5.2%, 6% - do people talk in similar ways about pensions? For example, would Friends Provident be any 'better' than say, Standard Life, just like AL may be better at the moment for fixed rate isas than say, Northern Rock? btw: the names are just made up and I haven't looked them up.