Moneywise Pension Awards 2012: Top pension providers
Sixty-five is the new 25. The newly retired, it seems, have social lives not dissimilar to those in their 20s, with half eating out regularly and two-thirds taking more than one holiday a year. According to research from Nest – the new low-cost workplace pension scheme – a third frequently top up their wardrobes and 3% are in a band.
Separate research from the Office for National Statistics (ONS) and Saga also found that we reach our peak of happiness and wellbeing between the ages of 65 and 69.
Freed from the shackles of 40 years or more in work, retirement is certainly a stage of life to be enjoyed. But with purse strings tightening, life expectancy increasing and annuity rates falling it's becoming increasingly difficult to save enough for our golden years.
Indeed, research from the Department for Work and Pensions found that 11 million Brits are facing inadequate retirement incomes, while the ONS reports the number of people contributing to personal pensions fell from 6.4 million in 2008/9 to six million in 2009/10.
The government is doing its bit to get us saving with the launch of Nest and auto-enrolment. From October, it will start rolling out its low-cost workplace-based pension scheme, which over the next five years will see some 10 million savers automatically enrolled into either Nest or their employer's own scheme.
For the majority of savers taking advantage of a workplace pension is the most sensible option – especially if your employer makes contributions too.
However, if you don't have access to a work pension or can afford additional savings alongside one, a personal pension is usually the best starting point. Pensions also enjoy the benefit of tax relief. So while you may have to pay tax on your pension income you can earn tax relief on your contributions, even if you don't pay tax.
All savers will automatically receive tax relief worth 20% on all contributions – which means that every £80 you pay in will be topped up to £100 by the government. Higher and additional-rate taxpayers can reclaim further tax back through HM Revenue & Customs.
But for the uninitiated choosing a pension is no mean feat, particularly if you are doing so without the assistance of an independent financial adviser. This is why each year Moneywise does the research for you and scours the market to reveal the best pensions and pension funds to help you save for an enjoyable retirement.
BEST STAKEHOLDER PENSION PROVIDER:
Winner: Scottish Widows
Scottish Widows Stakeholder pensions were introduced by the Labour government in 2001 as a means of kick-starting pension saving among lower earners.
The fact that 11 years down the line Nest is being introduced suggests Labour didn't achieve its aim. Nonetheless, these ‘plain vanilla' pensions still provide a simple fuss-free approach to retirement saving. Charges are capped at 1.5% for the first 10 years falling to 1% thereafter.
Minimum contributions start at an affordable £20 and can be paid weekly, monthly or less frequently than that if you prefer. You can also stop and start contributions whenever you like without penalty.
For the third year running, Scottish Widows takes the crown in this category. With the fund options more limited compared with what's on offer for other types of pension, our judges' attention was focused on functionality and service.
"Scottish Widows is our preferred provider of stakeholder pensions as we are very happy with its administration, fund-switch procedure and transferout process," says James Sumpter, senior financial planning consultant at Bestinvest.
The Aviva stakeholder plan came a very close second. Nick McBreen, IFA at Worldwide Financial Planning, praised its investment choice – of 27 internal and 12 external funds – and free fundswitching facility. "This is a valuable benefit for those pension investors taking a more proactive involvement with their planning."
BEST PERSONAL PENSION PROVIDER (NON-STAKEHOLDER):
Skandia With fewer restrictions on charges and minimum contribution levels, personal pensions provide access to a much wider selection of investment funds, including options from the pension provider and external fund managers. Theoretically therefore, investors who are prepared to pay a little more for their pension should be able to generate better returns through a non-stakeholder scheme.
It is therefore the quality of funds that our judges were most interested in with this category. Tom McPhail, head of pensions research at Hargreaves Lansdown, says: "All providers run plain vanilla funds themselves that are much of a muchness, largely delivering index-like returns. It is, therefore, the availability and quality of funds run by external managers that largely determines how good an offering these providers have."
Commenting on this year's winner, Skandia, Nick McBreen says: "Investors can get access to probably the most comprehensive choice of funds with more than 400 funds and more than 30 internal pension funds on offer."
Indeed, Skandia was the only pension in our shortlist to offer access to Fidelity's Moneybuilder Balanced fund, which won the Best Performing Fund for the Mixed Investment 40-85% category.
Charges are competitive too. "With no additional bid/offer spread or other bolt-on charges for such things as early exit, the plan is attractive for investors who do not immediately require the functionality of a full self-invested personal pension," says McBreen.
Commenting on our runner-up, Aegon, Philip Pearson, partner at P&P Invest, says: "Aegon provides a low-cost personal pension with a minimum contribution of only £100 gross each month. Up to 20 funds can be held at any one time from a wide choice of internal and external fund managers. Many with an annual management charge of only 1%."
BEST ANNUITY PROVIDER
Commended: Legal & General
Find the best annuity rate for your circumstances
Your annuity is arguably the most important financial purchase you ever make as it determines how much income you can raise from your pension fund. There is a huge variance in the level of income different providers will offer for the same size pension, yet two-thirds of retirees plump for the deal offered by their pension provider.
Shopping around for the best deal can boost your retirement income by thousands of pounds.
Our winner this year is Aviva. Sumpter says: "It is consistently at the top of the comparison tables, and its administration and customer service have also been impressive."
McPhail adds that the runner-up, Legal & General, is competitive and particularly helpful when dealing with smaller pensions.
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).
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.
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.
Annual management charge
If you put money in an investment or pension fund, you’ll not only pay a fee when you initially invest (see Allocation Rate) but also a fee every year based on a percentage of the money the fund manages on your behalf. Known as the AMC, the actual percentage varies according to the particular fund, but the industry average for active managed funds is 1.5%.