Give us all a stake in the cheap and cheerful new pensions

The latest proposals for "cheap and cheerful" stakeholder pensions with no commission fees and a maximum annual management fee of 1 per cent have been welcomed by discount brokers such as Hargreaves Lansdown, which last month launched an early version of a stakeholder pension with annual charges of 0.95 per cent; and by Virgin Direct, which holds down charges by selling personal pensions direct to the public and investing the money in tracker funds, which simply follow the stock market trends.

It has been welcomed by a few insurance companies including Legal & General, which already guarantees that anyone who starts contributing to a pension now will be given "stakeholder" terms without penalty. But most of the industry says a 1 per cent annual fee is not enough to pay for either basic advice or professional management of the funds.

Few financial advisers will want to sell stakeholder pensions if the most they are likely to earn is around pounds 3 a year in commission. So "stakeholders" will only be sold in bulk, through employers, who'll be obliged to offer access to stakeholder pensions if they are not already providing a company scheme, or through affinity groups such as trade unions.

Anyone who can join an occupational pension scheme should still do so to take advantage of the employer's contributions. Anyone else who can afford to invest more than the proposed maximum of pounds 300 a month in a "stakeholder" will still be better off with a personal pension - and the more they earn and the older they are, the greater the advantage because of tax relief on all pension contributions. Anyone who already has a personal pension should keep it going, especially if they have already paid the charges up-front. Anyone thinking of starting a pension should ensure they're being offered a plan that'll match a "stakeholder".

But one issue still to be resolved is whether current rules limiting individuals to an occupational, a personal or a stakeholder pension will be relaxed. If not, stakeholders will only appeal to low earners with no other pension plans. If the Government really wants stakeholder pensions to take off, it will have to allow simultaneous membership of more than one type of scheme. That would make a stakeholder pension an attractive basic investment for everyone in work, while allowing those who can also join an employer's occupational pension, or afford a de luxe personal pension plan, to do so.

Isabel Berwick is away.

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