What is Automatic Pension Enrolment?
Question asked by Tristan Hoyes
I’ve been considering transferring one or more of my old pensions into a new defined contribution arrangement but I hate the idea of paying high charges on my pension savings. Does this mean that a stakeholder pension will be better for my needs than a SIPP?
Stakeholder pensions were introduced by the UK government in April of 2001 as a means to enfranchise greater numbers of lower income workers. However, they also have a particular appeal as a pension transfer vehicle. This is partly due to the fact that the charges imposed by such plans are low and enforced by law.
Even so, the costs attached to stakeholder pensions have risen over the years. For stakeholder pensions that were started prior to 6 April 2005, the annual charge is still locked at 1% per annum but for plans set up after this date, annual management charges are limited to 1.5% per annum for the first 10 years with a scheduled reduction to 1% a year after this point.
Most stakeholder contracts will also offer access to modern pension options such as income drawdown, which now confers almost complete freedom as to how you choose to take your benefits (subject to the tax rules).
Although stakeholders are competitively priced compared to many mainstream personal pension contracts, the truth is that you may be able to access certain SIPPs at a similar cost to stakeholder pensions.
In general, most SIPPs are also likely to offer a wider range of potential fund choices than the average stakeholder pension although, in reality, most stakeholder contracts will offer a very broad range of investment choices.
This means that when comparing the various merits of a stakeholder pension and a SIPP as a potential transfer vehicle, it’s important to compare both charges and investment choices. Unless, you have particularly esoteric investment needs or want to hold more unusual assets such as commercial property, then a stakeholder should compare well in terms of both price and investment choice.