Picking the wrong pension can prove expensive

FUND CHARGES

BY NIC CICUTTI

The cost of taking out a personal pension or endowment policy varies enormously from one company to another. Financial advisers have long known this - but it has taken the enforced disclosure of charges and commissions from 1 January this year to bring the sometimes huge disparity into the open.

According to an authoritative new survey this week, investors who place their money with some of Britain's best-known personal pension providers will see tens of thousands of pounds taken from the value of their policies on maturity because of company charges.

The cost of choosing between the cheapest and most expensive fund can be more than 20 per cent, leading to a difference of up to £20,000 on a £100 a month pension after 25 years. The report, by Money Marketing, underlines the importance of analysing the commissions and charges levied by different pension providers.

Among the most expensive, says the report, are many household names, including Prudential, Commercial Union, Scottish Provident and Standard Life. Firms with low costs include several that pay no commission to financial advisers, such as Equitable Life, Provident Life and Professional Life.

The difference between low and high commission-paying companies is not always huge. Of those that do pay commission, Scottish Amicable, Legal & General and Axa Equity & Law have some of the lowest charges.

The survey is the first to focus on company costs since new disclosure rules were imposed by the Treasury on 1 January. Its findings show returns for both unit-linked policies, which are closely linked to the stock market, and with-profits plans where companies use past returns to smooth out fund performance over a number of years.

The figures are calculated by assuming a fixed growth rate of 9 per cent a year in the case of pensions and 7.5 per cent net of tax for endowments.

On with-profits endowments, the survey places Scottish Amicable in the top three, with total charges of £8,415 on premiums of £100 a month over 25 years, delivering £70,500. This compares with a maximum of £84,851 if no charges were levied at all. Other low-charging companies include Equitable Life, Scottish Provident and Friends Provident.

Among the more expensive firms is Guardian, formerly Guardian Royal Exchange. Savers would see more than £20,000 cut off the maturity value of their endowments with the firm, delivering returns of £58,656. Royal Life, paying £61,624 and Clerical Medical, on £61,800, were also in the bottom three for charges.

The survey reveals that despite attempts by financial regulators to make charges easier to understand, companies themselves are having none of it.

A proliferation of different charging structures is used by various firms, making it extremely difficult to compare them on a like-for-like basis.

Alistair McArthur, who edited the survey, said: "So far, disclosure has not had the desired effect. Providers have complied with the letter rather than the spirit of the rulings.

"They are doing the minimum required rather than taking enough steps to make products transparent. Once again, some life insurance companies appear to be dragging their heels.

"Disclosure of charges and allocation rates should be welcomed but product providers still have a long way to go before investors can be sure just how much their plans will cost."

Roddy Kohn, an independent financial adviser at Bristol-based Kohn Cougar, said: "The most important point is that while the effect of charges is one part of the calculations made when deciding whether to invest money with a company, the other crucial area to consider is performance."

The survey normally costs £3.75. It is available by special offer to Independent readers for £2.75 (plus 25p P&P). Send cheques or POs, made out to Money Marketing, to: Ian Paxton, St Giles House, 50 Poland Street London, W1V 4AX.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

PROMOTED VIDEO
Life and Style
Suited and booted in the Lanvin show at the Paris menswear collections
fashionParis Fashion Week
News
i100
Arts and Entertainment
Kara Tointon and Jeremy Piven star in Mr Selfridge
tvActress Kara Tointon on what to expect from Series 3
Voices
Winston Churchill, then prime minister, outside No 10 in June 1943
voicesA C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
News
i100
News
An asteroid is set to pass so close to Earth it will be visible with binoculars
news
News
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Tax Assistant

    Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

    Recruitment Genius: Outbound Sales Executive - OTE £25,000

    £16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

    Ashdown Group: Java Developer / J2EE Developer - Watford - £45,000 - £47,000

    £45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...

    Ashdown Group: Marketing Product Manager - (Financial Services) - SW London

    £35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

    Day In a Page

    Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

    Celebrities call on David Cameron to take more Syrian refugees

    One young mother tells of torture by Assad regime
    The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

    The enemy within

    People who hear voices in their heads are being encouraged to talk back
    'In Auschwitz you got used to anything'

    'In Auschwitz you got used to anything'

    Survivors of the Nazi concentration camp remember its horror, 70 years on
    Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

    Autumn/winter menswear 2015

    The uniforms that make up modern life come to the fore
    'I'm gay, and plan to fight military homophobia'

    'I'm gay, and plan to fight military homophobia'

    Army general planning to come out
    Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

    What the six wise men told Tony Blair

    Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
    25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

    25 years of The Independent on Sunday

    The stories, the writers and the changes over the last quarter of a century
    Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

    Homeless Veterans appeal

    As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
    Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

    Smash hit go under the hammer

    It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
    Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

    The geeks who rocked the world

    A new documentary looks back at origins of the computer-games industry
    Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

    Belle & Sebastian is taking a new direction

    Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
    America: Land of the free, home of the political dynasty

    America: Land of the free, home of the political dynasty

    These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
    A graphic history of US civil rights – in comic book form

    A graphic history of US civil rights – in comic book form

    A veteran of the Fifties campaigns is inspiring a new generation of activists
    Winston Churchill: the enigma of a British hero

    Winston Churchill: the enigma of a British hero

    A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
    Growing mussels: Precious freshwater shellfish are thriving in a unique green project

    Growing mussels

    Precious freshwater shellfish are thriving in a unique green project