Stakeholder Pension charge increased

edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning
19 replies 1.5K views
dunstonhdunstonh Forumite
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Just announced. Stakeholder pensions can have 1.5 annual management charge for first 10 years when it then reverts to 1.0.

Its a smaller increase than the insurance companies wanted but its more or less in line with what was expected.

No news yet on existing plans or how it will be implemented.
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.
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  • PalPal Forumite
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    Great. So now investment providers can increase the number of overpriced gambling funds they offer to people who don't understand what they are doing. A real step forward for the investment industry.

    Just imagine, as well as gambling our future income on equities outperforming other asset classes, we will now be able to invest in even more exotic equity funds managed by fools in the hope that they can, by pure luck, outperfom an almost randomly generated benchmark! That will do wonders for my investment risk profile.

    Still, I guess that the 1% limit was always fairly arbitary anyway. At least a 1.5% limit continues to exclude the massive front loaded fees that some providers charge for their gambling funds.
  • DiggingOutDiggingOut Forumite
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    Now, now, Pal, your bias might be showing a wee bit here. :D (You might be right, too!)

    The questions I would like answered:
    1. What happens to existing funds?
    A) Can charges be increased on them?
    B) Will there be ring-fencing, where contributions before a certain date can only be charged at 1%, but contributions after that at 1.5%?
    C) Will we be able to continue to make contributions at existing fees levels for existing plans, and does the higher limit just apply to completely new plans?
    D) If you have a stakeholder (maximum flexibility, remember) under the old 1% regime and you want to transfer it to a different provider, are you then subject to the higher charges, or can you carry over your 1% limit?
    E) If you transfer, do you go back to 0 years, or continue to accummulate years towards the 10 year threshold?

    2. When will this come in?

    Depending on the answers above, it may be wise to start stakeholders for children before this comes in.

    In fact, if the terms are as DD suggests, it might well be wise to put £20 in a stakeholder for every child. That presumably would start the 10 years running, and by the time they are old enough to be paying in anything significant, they would be under the 1.0% regime. ;)

    Just don't tell the industry and/or the government that I suggested that, or they'll come up with some way to block it. :P
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  • paul666paul666 Forumite
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    It doesn't matter.
    There are enough SH pensions with charges significantly below the 1%.
    They aren't making a loss or otherwise they wouldn't be doing it.
    All the change means is that they can charge up to 1.5% if they want to.Hopefully, competition and the continuing free transfer SH rule will mean that no companies will increase existing charges. What they might do is launch extra *new* *improved* [more expensive] pension products and good luck to them.
    At least the 1% cap has served to focus the public's attention on the charges aspect of personal pensions.
  • dunstonhdunstonh Forumite
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    It doesn't matter.
    There are enough SH pensions with charges significantly below the 1%.
    They aren't making a loss or otherwise they wouldn't be doing it.
    All the change means is that they can charge up to 1.5% if they want to.Hopefully, competition and the continuing free transfer SH rule will mean that no companies will increase existing charges. What they might do is launch extra *new* *improved* [more expensive] pension products and good luck to them.
    At least the 1% cap has served to focus the public's attention on the charges aspect of personal pensions.


    All the major players have been pushing for an increase and they are acting almost cartel like.  I reckon you will see introductions of more tiered rates of charges than there are currently.   Those that pay little will have the highest charge applied.  Those with higher values will get lower charges.

    I was in discussion with a provider the other day who stated that they really dont want to provide regular premium pensions as the charges are too low and the persistency on regular premiums is awful.  Basically its showing no profit.   I would expect the companies to take the view that if they lose 20% of their business because they increase to the new charge but gain 50% in profit, it would be a gain worth taking.

    There may be pensions with "significantly" lower charges available in the market but they just dont have the marketing ability or penetration that the big players have.   They will remain a niche player.   Indeed, there comes a point when these niche players cannot afford to take on more business because the cost of expansion to cope with the workload cannot be justified within their charging structure.

    I doubt you will see a significant move to offer external funds as the increase is only for 10 years.

    Personally, i believe what you will see offered by providers is a stakeholder v2 pension scheme.  Those already in "v1" will remain.  However, the treasury has said that no decision has been made yet as to whether thos who were already subscribing to stakeholder products would see their charge increase from April 2005.
    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.
  • MilarkyMilarky Forumite
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    Where has this information on charges been seen? Is April 2005 a 'firm' date then? I was under the impression that the 1.5% related to 'stakeholder-type' savings plans brought forward by the Sandler report, and the the Government had only just conceded a rise in the administration charges for those [entirely new] products?

    If pensions were to be subject to 1.5% charging (instead of the 1% at present) in future they would be harder to sell surely? It would be shooting themselves in the foot - unless they [the industry] are relying on 'captive' customers in those already with stakeholder pensions and not caring whether new customers stay away as a result? [echoing DD's points]

    EDIT Found something: Treasury Announcement 57/04

    'Interesting' what it says about CAT standard Cash-ISAs (bet you didn't know that they only had to pay 2.5% interest!) My suggestion for the new Regulator's name- it has to be: The Regulatory Investment Protections OFfice [RIPOF] >:(

     
    .....under construction....
  • MilarkyMilarky Forumite
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     However, the treasury has said that no decision has been made yet as to whether thos who were already subscribing to stakeholder products would see their charge increase from April 2005.

    Yes, there can be no justification for charging a higher rate for the money already invested in stakeholder pensions can there? There is no 'sales patter' [advice] to go along with this.

    On the other hand, recurring premiums - made into extisting plans after April 2005 - what about those?

    In reality they [the government/industry] have agreed a 5% initial charge spread over 10 years, plus 1% annual change [hence 1.5% for the 'first' 10 years]. But have they thought any of the details through?

    for instance, what happens if you open a stakeholder in 2005, say, and then move it in 2008 to someone else? Will you be charged another 10 years at 1.5% - or
    simply another 7 years? [10 years from the date of the original investment, in other words]
    .....under construction....
  • paul666paul666 Forumite
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    There may be pensions with "significantly" lower charges available in the market but they just dont have the marketing ability or penetration that the big players have. They will remain a niche player.
    I hardly think L&G, NU or SL are niche players. Who are these big players you're talking about?
  • dunstonhdunstonh Forumite
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    I hardly think L&G, NU or SL are niche players. Who are these big players you're talking about?

    I hardly think that those three are cheap providers. They are the big guns that have been pushing for an increase in charges.

    NU and L&G have a small discount on higher fund values. SL charge the standard 1%. That hardly makes them a cheap provider.
    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.
  • paul666paul666 Forumite
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    I'm interested.

    Do you think that I'm not going to be bothered to
    post to insist that those are cheap providers?

    That they can offer charges as low as 0.3%?

    That SL is indeed possible for a starting rate of 0.72%
  • dunstonhdunstonh Forumite
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    Just go to the NU website and see that the consumer version is 0.9% pa with tiered discounts depending on fund size. An IFA could go cheaper than that with the commission sacrificed. Which I assume is where you are coming from with regards to discounts.

    You dont see the big providers marketing the fact you can get their products cheaper as they do not make the discount. Its the IFA that takes the commission hit to reduce the annual charge, not the provider. The providers are only discounting on larger funds.
    Peter Hales (Director) at Norwich Union Life which was particulary vocal in criticising the 1% cap, said the 1.5% cap announcment was an important stop in the right direction and clearly showed the government understood a price cap of 1% was not economically viable.
    John Lawson, senior technical manager at Standard Life said the 1% charge forces you to focus on the wealthier people to improve profitabilty
    Simon Douglas, managing director of marketing at Standard Life said "the charging structure is a poor deal for consumers. For lower savings levels it does not address the fundamental problems of the old cap and for higher savings levels we can offer better products below the level of the price cap
    Legal and general said on Friday it would have preferred an initial charge "it doesnt do enough and wont make a great deal of difference in expanding the market"
    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.
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