The top pension providers in 2013
Planning your retirement isn't easy. Which pension should you go for and where should you invest? Once you retire which annuity should you go for?
To help guide you through the maze, the Moneywise Pension awards pick out the best stakeholder and personal pensions and, for those investors wanting to take more control of their savings, self-invested personal pensions (Sipps).
We also reveal the UK's best performing pension funds which you may want to add to your portfolio. And, because sensible retirement planning doesn't stop when you retire, we also reveal our pick of the annuity providers.
Best stakeholder provider
Winner: Scottish Life
Stakeholder pensions will never be the most exciting of financial services - only offering access to a small, and often uninspiring, range of funds. Nonetheless, here at Moneywise, we believe stakeholder pensions still play a vital role in making retirement planning more accessible, more straightforward, and more affordable.
Charges are capped at 1.5% for the first 10 years, falling to 1% thereafter. Minimum contributions are as low as £20 a month and can be paid weekly or monthly. You can also stop and start contributions if your financial position changes. The key is picking one that offers access to a decent selection of funds, including options from external fund managers not just the pension provider's in-house selection.
This year, Scottish Life takes the crown, with the winner for the past three years, Aviva, taking the runner-up position. Summing up the Scottish Life proposition, judge Patrick Connolly, certified financial planner at IFA Chase De Vere, says: "Scottish Life sets high standards for administration and service and its individual stakeholder plan has a wider and better quality range of fund links than its main competitors." Indeed, the plan offers access to Invesco Perpetual Distribution, which Moneywise has selected as the best performing pension fund in the mixed investment 20-60% category.
Best personal pension provider
Commended: Scottish Widows
Judge Nick McBreen, IFA at Worldwide Financial Planning, notes that the future of financial planning lies in platforms - services that enable investors to buy, sell, view and manage their investments in one place online. Our winner, Skandia, with its Collective Retirement Account, is at the forefront of this change offering investors access to an enormous number of externally run funds.
Judge Scott Gallacher, IFA at Rowley Turton says: "In keeping with much of the competition, it offers unlimited free fund switches, but with Skandia this has particular value because of the more open architecture approach to fund choice through the platform." He adds that Skandia was one of the first pension providers to offer access to externally managed funds. "This revolutionised the pensions industry and now almost all pensions offer this facility, however Skandia is arguably still the daddy with more than 1,000 funds available." The plan, however, is only available from IFAs.
Best performing funds within a pension:
Mixed investment: 20-60% shares
Winner: Invesco Perpetual Distribution
Commended: Henderson Cautious Managed
Funds in this sector can only invest a maximum of 60% in shares and must have at least 30% in fixed interest. This means that while these funds won't shoot the lights out, they shouldn't come with any nasty surprises either, making them useful for older savers who are wanting to protect their capital in the run-up to retirement.
Our winner, Invesco Perpetual Distribution, takes the award for the second year in a row and is available from a broad selection of pensions including those of Skandia, Aviva, L&G, Prudential, Axa, Scottish Life and Scottish Widows.
McBreen comments on the "huge pedigree behind the triumvirate" fund management team of Neil Woodford, Paul Causer and Paul Read. "These guys really know their beans and consistently deliver the goods, significantly out-delivering the sector."
Mixed investment: 40-85% shares
Winner: Ecclesiastical Higher Income
Commended: Fidelity Moneybuilder Balanced
Younger pension savers can afford to take more risk and focus on funds that are more heavily weighted to equities. Funds in this sector, which have up to 85% of their make-up in shares, are therefore a sensible choice.
This year, Ecclesiastical Higher Income knocks last year's winner, Fidelity's Moneybuilder Balanced - into the runner-up position.
Commenting on the fund - which is available from Aviva and Skandia - Connolly says: "Fund manager Rob Hepworth has run this fund for nearly 20 years and during that time has established a really consistent record. He has performed well in rising markets while doing a good job of protecting investors' money when markets are falling. This strong performance is very much due to his stockpicking abilities."
Winner: Margetts Venture Strategy
Commended: Threadneedle Global Equity
As its name suggests, fund managers in this sector have more freedom as to where they invest and are able to hold up to 100% of their cash in equities. As a result, these funds sit higher up the risk spectrum, making them only suitable for aggressive investors or younger investors with time on their side.
Our winner, Margetts Venture Strategy, is a fund of funds. Gallacher says: "It aims to achieve long-term growth through a portfolio of predominantly international equities." Over the past seven years, the fund has returned investors 83.01%, but over the short term our judges warn that high levels of volatility are possible."
He adds: "I would suggest that this fund offers potentially good returns but it is not for the faint-hearted as it can see higher falls than some of its peers." The fund is available from Axa, Skandia and Aviva.
Winner: Axa Framlington Biotech
Commended: Baring German Growth
The difference in this year's results and last year's highlights the fickle nature of this sector, which provides a home for funds that cannot be housed elsewhere. Here regional funds rub shoulders with healthcare, natural resources, agriculture and financials, to name but a few.
In 2012, Latin American funds led the way but this year these funds didn't come close, with the Axa Framlington Biotech fund substantially outperforming its somewhat motley crew of peers. The fund, which is available from Aviva, Skandia and Legal & General, invests in biotechnology, genomics and medical research stocks, primarily in the US.
Although performance has been impressive, Connolly warns that this fund does come with a health warning. "It has risen by more than 40% in the year to date, but as well as making big gains, such a specialist fund will also be potentially prone to big losses."
Best comprehensive Sipp provider
Winner: Suffolk Life
Commended: James Hay
Wealthier investors who aren't satisfied with the range of investment options available from personal pensions can look to Sipps for more choice and flexibility. Although a comprehensive Sipp will invariably be more expensive, they offer savvy investors the chance to hold assets such as individual company shares and commercial property within their pension.
The winner this year is last year's runner-up, Suffolk Life. Commenting on the winner, Connolly says: "Suffolk Life offers all of the flexibility that an individual is realistically likely to want in a Sipp and provides excellent levels of support and service to investors. The charges are also competitive for the level of functionality offered." Judge Mark Stone, financial consultants director at Whitechurch Financial Consultants added that Suffolk Life has "always been a market leader in terms of service, product and investment options".
Best Low-Cost Sipp Provider
Commended: Charles Stanley Direct
Low-cost Sipps are typically run online and, while they may not have the full range of investment options available on comprehensive Sipps, there is usually more than enough choice to satisfy the typical active investor.
Our winner this year is AJ Bell's SippDeal - which has won the award for seven out of the past eight years. Gallacher describes it as a "ridiculously cheap deal with no establishment or annual charges. It effectively allows you to have a Sipp from just £9.95 - the dealing charge." Connolly also compliments its "useful interactive tools".
Best Mainstream Annuity Provider
Winner: Legal & General
An estimated two-thirds of retirees buy the annuity offered to them by their pension provider, but with the difference in income offered between the best and worst providers as much as 30%, it makes sense to shop around for the best deal. Over the length of your retirement, this could boost your income by thousands of pounds. Although the best quote for you will depend on your own circumstances, our judges all agreed that the most consistent annuity provider currently in the UK is Legal & General. Gallacher says: "With competitive rates across the board, a designated annuities team makes dealing with them straightforward and the financial strength of one of the UK's oldest insurance companies with over 175 years' experience, Legal & General is a clear winner in this competitive area."
Best Enhanced Annuity Provider
Winner: Just Retirement
Unless you take advice at retirement, it's highly likely you end up with a conventional annuity, where your income is calculated based on average life expectancy. But if you have any condition that is likely to reduce your life expectancy, it's worth investigating enhanced annuities. Underwriters will take into account your own health and lifestyle - for example, whether you smoke or are overweight - and will be able to offer you a higher income.
According to MGM Assurance, even though some 70% of retirees will qualify for an enhanced annuity, only 2% of non-advised customers will buy them. It's for this reason Moneywise decided to highlight the value of enhanced annuities and introduce an award for the specialist providers operating in this market.
This year, the award goes to Just Retirement. Connolly describes the company as "the most innovative of all product providers and consistently has market-leading annuity rates which it combines with a strong level of service".
Our starting point was obtaining details of the top-performing funds within four sectors commonly used by pension investors, over three, five and seven years. This data, provided by Lipper, enabled us to determine the best-performing funds across these time periods. To win, a fund had to be available from two or more pension companies. This information also helped us build a shortlist for the best personal pension category.
The stakeholder list was comprised of all the providers currently in this market. These lists were presented to our judges who voted for their top providers based on service, ease of access, investment choice, transparency, restrictions and charges.
In the low-cost Sipp category, we presented the judges with a shortlist based on best buy quotes for two different investing styles and portfolio sizes provided by CandidMoney.com.
In the comprehensive category, we asked the judges to make their choices based on their specialist knowledge of the market.
Finally, in the two annuity categories we asked our judges to base their decisions on a range of best buy quotes (across different ages, smoking, non-smoking and with health problems) using data provided by the Annuity Bureau.
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 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.
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).
Generally thought of as being interchangeable with insurance but isn’t. Assurance is cover for events that WILL happen but at an unspecified point in the future (such as retirement and death) and insurance covers events that MAY happen (such as fire, theft and accidents). Therefore you buy life assurance (you will die, but don’t know when) and car insurance (you may have an accident). Assurance policies are for a fixed term, with a fixed payout, and unlike life insurance have an investment aspect: as a life assurance policy increases in value, the bonuses attached to it build up. If you die during the fixed term, the policy pays out the sum assured. However, if you survive to the end of the policy, you then get the annual bonuses plus a terminal bonus.
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 individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.