Moneywise Pension Awards 2008
No matter how young you are, you will, no doubt, have some sort of aspiration for your retirement; perhaps you see yourself travelling the world, writing a children's novel or living the good life in the country. Whatever your plans, one thing is certain - you'll need an income to support you through the latter years of your life.
But despite this, the fact remains that more than two years after the government’s overhaul of the pension system, the majority of people are still not saving enough for their retirement.
Lack of affordability and awareness seem to be the main culprits. Plus, many people are finding it hard to make ends meet let alone tucking money away for a rainy day, or indeed a pension. This year, a report from Prudential revealed that people paying into company and private pension schemes had typically reduced their contributions by almost 50%. The report also revealed that a worrying 55% of people weren’t paying into a pension at all.
With state support in retirement remaining inadequate, those people that are burying their heads in the sand will have to take an honest look at how they will survive financially when they finally stop working.
In an attempt to encourage more people to put away money for their future, the government is planning to launch a new national savings scheme, called personal accounts, in 2012. The scheme won’t be compulsory, but unlike most work-based pensions, employers will be automatically enrolled into the pension (with the option to opt out) to ensure as many people as possible participate.
They would then have to pay at least 4% of their salary into the scheme with their employer paying 3% and the government paying another 1% in tax relief.
But while auto-enrolment should encourage even the most lethargic of employees to save, critics fear it could still leave savers with inadequate pension pots. This is because it could be all too easy for those companies offering more attractive pension schemes to ‘level down’ and switch to cheaper personal accounts.
So, while there may be more pension reform ahead, scant state provision means the onus will remain on us to take charge of our own pension provision. A company scheme will remain the best way for many people to save - especially if your employer makes contributions on your behalf. However, if you do not have access to a company scheme, or you are looking at ways to top up your pension provision, a personal pension scheme could be the answer.
Once you’ve decided to start saving into a private pension, you’ll need to work out which is the best pension for you. Then, when you’ve chosen your pension you’ll need to decide which of its funds you want to invest your contributions in.
There is a massive difference between the best and worst pensions and the best and worst funds, so making the right choice could end up giving a big boost to your eventual pension pot. This is where the Moneywise Pensions Awards come in. In addition to revealing our top personal pension providers, we also point you in the direction of the best pension funds.
Finally, because retirement planning doesn’t stop with pensions, we also take a look at the best annuity providers to ensure your pension buys you the best possible income when you retire.
Best stakeholder pension 2008
Historically, people who didn't have access to an occupational pension scheme only had one option - a personal pension plan. However, the combination of charges and complexity meant they weren’t popular with the typical saver.
So, in April 2001, the government introduced the stakeholder pension scheme, which was designed to be a simpler and cheaper option that would appeal to the average consumer. To keep costs down stakeholder pensions have lower charges (capped at 1.5%) and usually only offer access to a limited range of pension funds.
Stakeholder pensions are ideal for investors looking for a straightforward product with low charges that can allow them to invest in a pension without being too complicated or costly. And as plans are reasonably simple, investors can be comfortable taking one out with little or no advice.
The winner in the stakeholder category this year is AXA Stakeholder Pension because it manages to combine low charges with a wide range of fund choices. The plan offers 29 internal funds with an additional seven from external companies.
Philip Pearson, judge and partner at IFA firm P&P Invest, applauded the scheme for being transparent and easy to access. "For anyone seeking a low-cost option, then this plan fits the bill," he says.
Legal & General and AEGON Scottish Equitable took joint second place. Both groups were applauded for offering a reasonable fund choice in conjunction with a competitive charging structure.
Pension: AXA Stakeholder Pension
Number of funds within pension: 36
Restrictions: Minimum contribution of £20
Charging structure: Annual fund management charge is currently 1% a year
Contact: Contact your financial adviser for more information
Best personal pension provider (non-stakeholder) 2008
Stakeholder schemes are not ideal if you want to invest in a wider range of funds. If you are happy to pay a slightly higher charge, you should consider taking out a non-stakeholder personal pension.
Personal pension providers have reduced their charges since 2001, but they are still the more expensive option. As a result it was important to us that the judges picked a plan that offered good value to consumers. And our winner this year, Scottish Widows, certainly seems to tick all the boxes with its extensive range of investment funds and its competitive charges.
"The plan is very transparent providing the ability to demonstrate cost and value to the client. Scottish Widows has also worked hard to maintain quality administration where others have overlooked," explains Nicholas O’Shea, a director at Pharon IFA.
The runner-up in this category is AEGON Scottish Equitable, which was praised for having "a wide range of funds and highly competitive management charges".
Pension: Scottish Widows, The Retirement Account
No. of funds within pension: 116 internal funds plus another 1,200+ available via FundsNetwork
Restrictions: Minimum payment is £100 per month
Charging structure: Service charge varies between 0.15% to 0.7%. Investment charge (AMC) varies from internal fund charge of 0.2% to 1.28%
Contact: 0845 7166777
Best performing funds within in a pension 2008
All pension providers offer a wide range of funds to choose from, usually with a mix of their own funds and external funds, and with assets ranging from shares to property and bonds. There is usually a good spread of funds from higher risk emerging markets funds through to safer fixed-interest funds, enabling investors to pick those funds that match their risk profile.
In this category of the awards we’ve looked at the three managed sectors - active, balanced and cautious - as these are core funds for pension savers. However, as some investors will be looking to boost their returns with some exposure to more ambitious sectors, we also included funds in the specialist sectors. This year’s top pension funds were picked after assessing which ones had demonstrated the best overall performance over the last one, five and seven years.
Top balanced managed fund: Neptune Balanced
Manager: Robin Geffen
Pensions offering this fund: Skandia
% performance: 1 yr 6.92%/3 yrs 58.83%/5 yrs 106.55%
Contact: 0845 1256301
Balanced managed funds must not invest more than 85% in equities, and at least 10% must be held in non-UK equities. Our winner in this category, Neptune’s Balanced Managed fund, is predominately exposed to direct equities and bonds and looks for ideas across a wide range of stocks. "Although the underlying approach is high conviction fund management and with that comes a relatively high degree of upside and downside risk, the returns do justify the means," believes McBreen.
The runner-up in this category, AXA Framlington Managed Balanced, has delivered good returns with a 50% to 60% exposure to UK, and McBreen thinks it will be worth keeping this fund in mind to see if "it maintains an excellent record of delivering growth at a fair price".
Top active managed fund: Neptune Global Alpha
Manager: Robin Geffen
Pensions offering this fund: Legal & General
% performance: 1 yr 11.31%/3 yrs 109.9%/5 yrs 207.59%
Contact: 0845 125 6301
Active managed funds are allowed to invest up to 100% in equities. But while they are higher risk, active managed funds are also more likely to reap greater rewards and this year’s winner, Robin Geffen’s Neptune Global Alpha, is no exception.
According to pension specialists, it has performed consistently well and has managed to deliver great performance in uncertain times. "While a very, very aggressive fund, the results have been exceptional," says Nick McBreen, judge and IFA at Worldwide Financial Planning, who adds that Robin Geffen and his team "should certainly be in any well-designed pension portfolio".
Our runner-up is last year’s winner in this category; the M&G Managed Growth, managed by Graham French. Although it missed out on the top place, this international fund of funds was praised for offering access to a well-diversified portfolio of global equities.
Top cautious managed fund: Jupiter Merlin Income Portfolio
Manager: John Chatfield Roberts
Pensions offering this fund: Skandia/Legal & General/Merchant Investor/Standard Life
% Performance: 1 yr -4.86%/3 yrs 25.57%/5 yrs 55.63%
Contact: 0207 314 7600
Funds in this sector invest in a range of assets with the maximum equity exposure restricted to 60% of the fund and with at least 30% invested in fixed-interest and cash - making them less risky than other funds.
With a good geographical spread and diversification between sectors, it comes as no surprise that this year’s winner is John Chatfield Roberts’s Jupiter Merlin Income fund. Advisers praise the multi-manager fund for having delivered consistent returns for clients.
The runner-up in this category is Threadneedle Equity & Bond fund. David Marlow, director of Alexander Forbes Financial Services.
Top specialist fund: JP Morgan New Europe
Managers: Oleg Biryulyov and Jonal Pandit
Pensions offering this fund: Skandia/Legal & General
% Performance: 1 yr 43.77%/3 yrs 197.77%/5 yrs 364.25%
Contact: 0800 204020
This is a volatile sector but one that can enjoy impressive returns. The name ‘specialist’ might be misleading as this category covers such a broad range of investments with funds focusing on anything from commercial property to natural resources and new emerging markets like Latin America, Eastern Europe and Russia.
For experienced investors seeking a thrill it can be worth investing a portion of your contributions into these funds. However, it’s worth treading carefully because, while this sector might hold some of the best-performing funds, it also houses some of the worst.
Our Top Specialist winner - Oleg Biryulyov and Jonal Pandit's JP Morgan New Europe fund - is hanging its hat firmly on the rise of the Russian economy. McBreen says: "Returns have been excellent, as befits a fund that is actively seeking out stocks particularly in the ‘colder’ regions of Europe."
The Invesco Perpetual Latin America fund is the runner-up in this category for the second year running.
Best comprehensive SIPP provider 2008
Self-invested personal pensions (SIPPs) offer access to a wide range of investments including funds and shares as well as futures and options, and appeal to investors who want lots of options and to be in total control. On the flipside though, SIPP schemes can incur higher charges than other types of pensions.
While SIPPs might be hailed as a great way to save for retirement, it is important to acknowledge that they might not be the right option for everyone. If you aren’t likely to take advantage of the wider range of investments or only have a small pot, it’ll be worth sticking with a conventional personal pension.
Winner for the second year running is Standard Life, which was applauded by the judges for providing strong support and technical expertise. "The Standard Life SIPP provides a comprehensive package designed to meet the needs of most investors wishing to control their pension arrangements," says Pearson.
James Hay, a long-established and experienced SIPP provider, was highly commended in this category. It was lauded for its high level of customer service.
Provider: Standard Life
Investment options: external unit trusts, UK stocks and shares, overseas stocks and shares, commercial property, investment trusts, deposit accounts, external insured funds, foreign currency, warrants, gilts, traded endowments, hedge funds, options, futures, private equity
Charging structure: Initial max £302; annual admin max £416; £10 per fund transaction up to £300 pa; property set-up £650 per purchase
Contact: 0845 272 8810
Best low-cost SIPP provider 2008
A key way for SIPP providers to reduce the cost of their products is to reduce the number of investment options available – however, despite this they’ll still offer investors more choice than the average personal pension. Most schemes are also run online, helping providers keep costs down as much as possible.
As price is so important when choosing a low-cost SIPP, competitive charges were one of the key aspects we looked at when picking this year’s top provider.
Winner for the fourth year running is SIPPCentre, which was applauded by O’Shea for offering "factory-gate prices" and McBreen added that it "does what it says on the tin".
FundsNetwork came a close second in this category. Marlow says: "It is easy to use and has such a vast range of funds available."
Investment options: UK SHARES, GILTS, BONDS, CONVERTIBLES, UNIT TRUSTS/OEICS, INVESTMENT TRUSTS, INSURANCE FUNDS, WARRANTS, PIBS, CASH, ETFS, SOME US AND EU SHARES
Charging structure: Set-up £120; quarterly admin £20-£40; transfers £60 per scheme (in) and £75 per scheme (out); income drawdown £150pa; £150pa up to age 75 and £250pa from THEN
Contact: 0870 758 8859
Best annuity provider 2008
The first six months of 2008 saw annuity rates hit a five year high, although over the summer the tide appeared to turn as providers dropped their rates slightly.
While annuities is very much a rate-driven market, we also asked the judges to take the financial strength, service and flexibility of each company into consideration.
Legal & General, this year’s number one annuity provider, met all the criteria. It covers the whole annuity market and has a consistent range of rates.
Consistency seems to be play a big part here, with Marlow explaining: "Legal & General has recently been leading the market on inflation-linked annuities and they have been reasonably competitive on a range of terms. Despite being a large company, service has been consistently good on annuities."
The runner-up, Norwich Union, is also providing "very competitive rates", according to Pearson.
The first step was to compile shortlists of providers with the strongest performance and overall offerings in each category. We used performance data from Lipper to identify the top 20 funds in four sectors that are used regularly in pension investing and identified those available in at least one pension, giving us our Best Performing Funds within a Pension winners.
For the other awards, shortlists of the pension providers offering those funds were presented to our panel of expert judges. They then selected the top providers on the basis of a number of factors, including investment options, service, ease of access, transparency, restrictions, administration and charges.
For the SIPP categories, our judges chose their top performers from the entire market with information provided by Moneyfacts, while our winning annuity provider was selected by the panel from a shortlist of those offering the most competitive rates compiled by the Annuity Bureau.
The judging panel
Philip Pearson, partner, P&P Invest; David Marlow: director, Alexander Forbes Financial Services; Nick McBreen, IFA, Worldwide Financial Planning; Nicholas O’Shea, director, Pharon IFA.
Open-ended investment companies are hybrid investment funds that have some of the features of an investment trust and some of a unit trust. Like an investment trust, an Oeic issues shares but, unlike an investment trust which has a fixed number of shares in issue, like a unit trust, the fund manager of an Oeic can create and redeem (buy back and cancel) shares subject to demand, so new shares are created for investors who want to buy and the Oeic buys back shares from investors who want to sell. Also, Oeic pricing is easier to understand than unit trusts as Oeics only have one price to buy or sell (unit trusts have one price to buy the unit and another lower price when selling it back to the fund).
A financial adviser who is not tied to any financial services company (such as a bank or insurance company) and is authorised by the Financial Services Authority (FSA). They can advise on financial products to suit your circumstances. All IFAs have to give consumers the choice of paying by fees or commission and have to explain which would best suit the customer in that particular instance. Also, if commission is paid either by the client or the financial service provider recommended by the IFA, the IFA must disclose what that commission is.
Personal pension plan
A money purchase (defined contribution) pension that the holder can make contributions to if the company they work for does not provide an occupational or final salary scheme they can join or they are self-employed. PPP contributions qualify for tax relief.
A form of money purchase defined contribution pension launched by the then Labour government in April 2001 with low charges and no-frills minimum standards. Designed to appeal to people on low and middle incomes who wanted to save for retirement but for whom existing pension arrangements were either too expensive or unsuitable, the stakeholder didn’t really take off and looks to be superceded by the National Employee Savings Trust (NEST).
An alternative to an annuity, income drawdown (also known as an unsecured pension) allows you to take income from your pension fund while the fund remains invested and so continues to benefit from any fund growth. The drawdown of income has to be calculated carefully as taking too much income could exhaust the pension fund so experts say the annual drawdown must not exceed what the assets would normally yield in an average year. The invested pension fund could also be hit by market turbulence and the value of the assets could fall.
Like a self-select ISA but for pensions, self-invested personal pension is a registered pension plan that gives you a flexible and tax-efficient method of preparing for your retirement. It gives you all sorts of options on how you put money in, how you invest it and how it’s paid out and offers a greater number of investment opportunities than if the fund was managed by a pension company. SIPPs are very flexible and allow investments such as quoted and unquoted shares, investment funds, cash deposits, commercial property and intangible property (i.e. copyrights, royalties, patents or carbon offsets). Not permitted are loans to members or people or companies connected to the SIPP holder, tangible moveable property (with the exception of tradable gold) and residential property.
A sophisticated absolute return fund that seeks to make money for its investors regardless of how global markets are performing. To that end, they invest in shares, bonds, currencies and commodities using a raft of investment techniques such as gearing, short selling, derivatives, futures, options and interest rate swaps. Most are based “offshore” and are not regulated by the financial authorities. Although ordinary investors can gain exposure to hedge funds through certain types of investment funds, direct investment is for the wealthy as most funds require potential investors to have liquid assets greater than £150,000m.
Generic, loosely-defined term for markets in a newly industrialised or Third World country that is in the process of moving from a closed economy to an open market economy while building accountability within the system. The World Bank recognises 28 countries as emerging markets, including Argentina, Brazil, China, Czech Republic, Egypt, India, Israel, Morocco, Russia and Venezuela. Because these countries carry additional political, economic and currency risks, investors in emerging markets should accept volatile returns. There is potential to make large profit at the risk of large losses.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
A type of derivative often lumped together with options, but slightly different. The original derivative was a future used by farmers to set the price of their produce in advance before they sowed the seeds so that after the harvest, crops would be sold at the pre-agreed price no matter what the movements of the market. So a future is a contract to buy or sell a fixed quantity of a particular commodity, currency or security (share, bond) for delivery at a fixed date in the future for a fixed price. At the end of a futures contract, the holder is obliged to pay or receive the difference between the price set in the contract and the market price on the expiry date, which can generate massive profits or vast losses.
Active managed funds
These funds try to produce returns superior to a “benchmark index” such as the FTSE 100 by a combination of picking the right stock at the right price at the right time. A fund manager calls the shots and tries to outperform the index. “Passive” or “index tracking” funds just try to match the index as closely as possible and are managed by computer.
The familiar name given to securities issued by the British government and issued to raise money to bridge the gap between what the government spends and what it earns in tax revenue. Back in 1997, the entire stock of outstanding gilts was £275bn; by October 2010 it had surpassed £1,000bn. Gilts are issued throughout the year by the Debt Management Office and are essentially investment bonds backed by HM Treasury & Customs and considered a very safe investment because the British government has never defaulted on its debts and this security is reflected in the UK’s AAA-rating for its debt. Gilts work in a similar way to bonds and are another variant on fixed-income securities.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).