Many people have pensions that they took out a number of years ago, and that have not been reviewed since. 

Fundamentally there are four things that influence the amount of money you end up with in your pension.  These are:

  • Amount of money invested
  • Length of investment
  • Fund performance
  • Charges

It is fairly obvious that the more that is invested in to a pension and the longer the period it is invested for, the larger the pension fund should be at retirement.  However, there is generally less understanding with regards to the relationship between fund charges and performance.

If two funds grow at the same rate, the one with the lower charges will produce the better returns, but there can be a large disparity between different funds in terms of their investment performance.  Therefore it can sometimes prove wise to pay more for a fund if the prospects of higher returns justify the additional cost.

Historically, the choice of funds available through a pension was typically limited to those offered by the insurance company providing the pension.  There has been a shift over recent years, and more and more insurance companies are now offering funds that are managed by other people (usually fund management groups such as Invesco Perpetual, Jupiter, BlackRock, Artemis etc) as well as their own range of funds.  This has led to more choice for the consumer.

However this wider choice of funds is not normally available to policy holders who effected their plans prior to the changes, and as such older plans can limit choice when compared to more modern pensions, and can also have charges such as a 5% bid/offer spread on every contribution made.

Stakeholder pensions were introduced in 2001 and were designed to provide a simplified structure and limit fund charges.  They have achieved this, but at the expense of choice, as the majority of Stakeholder schemes have a limited choice of funds, and very few are able to offer funds managed by fund management groups.  This is because these funds cannot normally be managed within the charging structure required under Stakeholder rules.

It is therefore important that existing pension arrangements are reviewed regularly to ensure they continue to meet your objectives, in terms of contribution levels, charges and choice of funds.

Contact us to conduct a review of your Personal Pension funds »