Question
My daughter is just coming uo to the age of 40. The company she works for has been taking her pension contributions for some three years but, as she recently found out, has not been putting the money into their pension scheme. They have now offered her the full amount of her contributions (£2,300) and have recommended a company in which to invest. They want to charge £250 as an upfront cost and some £63/year for the advice and future admin.
Please can you tell me if this is a fair amount for such a small investment?Answer
It’s pretty worrying that your daughter’s employer took the money but didn’t invest it – they must be in breach of pension rules...
However, on the plus side had the money been invested in the stockmarket over the last three years she’d have probably lost money, so the error is probably a blessing in disguise.
The initial charge of £250 is prohibitive on the £2,300 lump sum (equal to nearly 11%), although if your daughter remains at the company until retirement it’s less of an issue longer term as it’s a one-off charge. The £63 annual charge is again pretty steep as this equates to over 2.5% a year on £2,300. Again, it will become more palatable as her pension fund grows in size, but it seems excessive at present.
The key is whether these charges are the only ones your daughter will pay, or whether they’re on top of underlying pension fund charges. For example, if the company runs their own money purchase pension scheme with no extra charge for underlying investment management then these fees are probably reasonable provided your daughter is likely to remain at the company for a number of years.
But if, as is more likely, these are simply charges bolted onto a pension scheme with its own charges, such as a group personal or stakeholder pension, then I think the charges could prove crippling on her modest pension contribution.
Your daughter should check whether her employer also makes contributions on her behalf (as part of her employment package). If so then the pension may still be worthwhile as the charges will probably be easily outweighed by the employer’s contribution. But if not, or her employer allows their contributions to be placed into a pension of your daughter’s choice, then she’ll probably be better off using a stakeholder pension. They’re cheap (the only allowable charge is an annual fee of up to 1.5% for the first 10 yearsthen 1% therefafter) and very flexible.
The £63 annual charge seems to include provision for advice, which your daughter might find worthwhile. Although with a bit of common sense choosing a stakeholder pension and underlying (funds) is pretty straightforward so she should be able to cope quite happily without advice.
She can read more about stakeholder pensions on our stakeholder pension and choosing a personal pension Action Plan pages.
My daughter is just coming uo to the age of 40. The company she works for has been taking her pension contributions for some three years but, as she recently found out, has not been putting the money into their pension scheme. They have now offered her the full amount of her contributions (£2,300) and have recommended a company in which to invest. They want to charge £250 as an upfront cost and some £63/year for the advice and future admin.
Please can you tell me if this is a fair amount for such a small investment?Answer
It’s pretty worrying that your daughter’s employer took the money but didn’t invest it – they must be in breach of pension rules...
However, on the plus side had the money been invested in the stockmarket over the last three years she’d have probably lost money, so the error is probably a blessing in disguise.
The initial charge of £250 is prohibitive on the £2,300 lump sum (equal to nearly 11%), although if your daughter remains at the company until retirement it’s less of an issue longer term as it’s a one-off charge. The £63 annual charge is again pretty steep as this equates to over 2.5% a year on £2,300. Again, it will become more palatable as her pension fund grows in size, but it seems excessive at present.
The key is whether these charges are the only ones your daughter will pay, or whether they’re on top of underlying pension fund charges. For example, if the company runs their own money purchase pension scheme with no extra charge for underlying investment management then these fees are probably reasonable provided your daughter is likely to remain at the company for a number of years.
But if, as is more likely, these are simply charges bolted onto a pension scheme with its own charges, such as a group personal or stakeholder pension, then I think the charges could prove crippling on her modest pension contribution.
Your daughter should check whether her employer also makes contributions on her behalf (as part of her employment package). If so then the pension may still be worthwhile as the charges will probably be easily outweighed by the employer’s contribution. But if not, or her employer allows their contributions to be placed into a pension of your daughter’s choice, then she’ll probably be better off using a stakeholder pension. They’re cheap (the only allowable charge is an annual fee of up to 1.5% for the first 10 yearsthen 1% therefafter) and very flexible.
The £63 annual charge seems to include provision for advice, which your daughter might find worthwhile. Although with a bit of common sense choosing a stakeholder pension and underlying (funds) is pretty straightforward so she should be able to cope quite happily without advice.
She can read more about stakeholder pensions on our stakeholder pension and choosing a personal pension Action Plan pages.
Read this Q and A at http://www.candidmoney.com/questions/question267.aspx
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