Picking the wrong pension can prove expensive
Saturday 25 February 1995
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.
- 1 Andreas Lubitz: Who is Germanwings co-pilot who 'locked out captain and crashed flight 9525'?
- 2 JK Rowling responds to fan tweeting she 'can't see' Dumbledore being gay
- 3 Germanwings crash: Descent may have been 'deliberate, suicidal choice' by pilot, claims experts
- 4 Germanwings plane crash live: Andreas Guenter Lubitz intentionally crashed flight 9525 into the Alps in act of mass murder and suicide – latest
- 5 Video shows what happens when lava is poured onto ice
Nigel Farage brands LGBT activists 'filth' and 'scum' and accuses them of scaring away his children after they invade his local pub
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
JK Rowling responds to fan tweeting she 'can't see' Dumbledore being gay
Russia threatens Denmark with nuclear weapons if it tries to join Nato defence shield
Jeremy Clarkson sacked live: Alan Yentob 'wouldn't rule out' ex Top Gear host's BBC return
Vote Ukip, says far-right group Britain First
iJobs Money & Business
£16000 - £18000 per annum: Recruitment Genius: A position has arisen within th...
£50000 - £63000 per annum + excellent benefits : Ashdown Group: IT Manager / D...
£16500 per annum: Recruitment Genius: Applicants must hold a valid SIA Door Su...
£50000 per annum: Ashdown Group: Business Analyst - Financial Services - The C...
Day In a Page
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station
A Grade II-listed home with six bedrooms, secluded landscaped gardens and views across Hadley Green