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; request a free guide on NISAs from Hargreaves Lansdown

Arts and Entertainment
Gregg Wallace in Summer's Supermarket Secrets
tv All of this year's 15 contestants have now been named
Arts and Entertainment
Inside the gallery at Frederick Bremer School in Walthamstow
tvSimon Usborne goes behind-the-scenes to watch the latest series
Life and Style
A picture taken on January 12, 2011 shows sex shops at the Paris district of Pigalle.
newsThe industry's trade body issued the moratorium on Friday
News
Winchester College Football (universally known as Winkies) is designed to make athletic skill all but irrelevant
Life...arcane public school games explained
PROMOTED VIDEO
Arts and Entertainment
Could we see Iain back in the Bake Off tent next week?
tv Contestant teased Newsnight viewers on potential reappearance
Life and Style
Silvia says of her famous creation: 'I never stopped wearing it. Because I like to wear things when they are off the radar'
fashionThe fashion house celebrated fifteen years of the punchy pouch with a weighty tome
News
i100(and it's got nothing to do with the Great British Bake Off)
News
Angelina Jolie with her father Jon Voight
peopleAsked whether he was upset not to be invited, he responded by saying he was busy with the Emmy Awards
News
Bill Kerr has died aged 92
peopleBill Kerr appeared in Hancock’s Half Hour and later worked alongside Spike Milligan and Peter Sellers
News
news It's not just the world that's a mess at the moment...
Sport
footballPremiership preview: All the talking points ahead of this weekend's matches
News
Keira Knightley poses topless for a special September The Photographer's issue of Interview Magazine, out now
people
Voices
The Ukip leader has consistently refused to be drawn on where he would mount an attempt to secure a parliamentary seat
voicesNigel Farage: Those who predicted we would lose momentum heading into the 2015 election are going to have to think again
Arts and Entertainment
Cara Delevingne made her acting debut in Anna Karenina in 2012
film Cara Delevingne 'in talks' to star in Zoolander sequel
News
i100
Sport
Mario Balotelli pictured in his Liverpool shirt for the first time
football
Life and Style
tech
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

    Data Scientist (SQL,Data mining, data modelling, PHD, AI)

    £50000 - £80000 per annum + benefits+bonus+package: Harrington Starr: Data Sci...

    SAS Business Analyst - Credit Risk - Retail Banking

    £450 - £500 per day: Orgtel: SAS Business Analyst, London, Banking, Credit Ris...

    Project Manager - Pensions

    £32000 - £38000 Per Annum Bonus, Life Insurance + Other Benefits: Clearwater P...

    KYC Analyst, Birmingham - £200-£250 p/d

    £200 - £250 per day + competitive: Orgtel: KYC Analyst, Key Banking Client, Bi...

    Day In a Page

    Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

    The phoney war is over

    Russian troops and armour pour into Ukraine
    Potatoes could be off the menu as crop pests threaten UK

    Potatoes could be off the menu as crop pests threaten UK

    The world’s entire food system is under attack - and Britain is most at risk, according to a new study
    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
    From Mozart to Orson Welles: Creative geniuses who peaked too soon

    Creative geniuses who peaked too soon

    After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
    Caught in the crossfire of a cyber Cold War

    Caught in the crossfire of a cyber Cold War

    Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

    Salomé: A head for seduction

    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
    From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

    British Library celebrates all things Gothic

    Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
    The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

    Is the Hard Rock Café worth fighting for?

    The restaurant chain's owners are currently embroiled in a bitter legal dispute
    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

    In search of Caribbean soul food

    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
    11 best face powders

    11 best face powders

    Sweep away shiny skin with our pick of the best pressed and loose powder bases
    England vs Norway: Roy Hodgson's hands tied by exploding top flight

    Roy Hodgson's hands tied by exploding top flight

    Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
    Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

    Di Maria and Ronaldo: A tale of two Manchester United No 7s

    They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
    Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

    Robert Fisk: No victory for Israel despite weeks of devastation

    Palestinians have won: they are still in Gaza, and Hamas is still there
    Mary Beard writes character reference for Twitter troll who called her a 'slut'

    Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

    The Cambridge University classicist even wrote the student a character reference
    America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

    America’s new apartheid

    Prosperous white districts are choosing to break away from black cities and go it alone