Pension Providers

 

 

Before you select the best pension provider, you must first decide which type of pension plan will suit you.

 

There are three different types of private pension plans: stakeholder pension, personal pension, and self-invested personal pension (SIPP).[br]

 

All these pension plans work under the same tax rules and in an almost identical way. The main differences are the range of investment options and the charges.

 

Stakeholder pension is very simple and has a limited range of funds one can invest in. Most of the funds are managed by the insurance company that runs the pension scheme. The charges are limited to 1.5% for the first 10 years and 1% thereafter. Therefore, stakeholder pensions are what might be called cheap and cheerful.

 

Personal pension plans are comparatively expensive, but have a much wider choice of investment funds. Personal pension has some funds run by the insurance company that runs the pension scheme, and other funds that are managed by external fund managers. These external fund managers are usually more expensive but have the potential to provide better performance, or access to markets not available through the insurance company’s funds.

 

A low-cost SIPP is usually no more expensive than a personal pension and in some cases can even be cheaper. A full-cost SIPP is usually only worth having for those buying directly into commercial property.[br]

 

How to Choose the Right Pension Provider

Recent surveys have shown that adequate steps are not taken by individuals for a safe and secure life post retirement. People tend to rely heavily on state pensions and just 27% of those without savings at 25 intend to start saving before they turn 39. That is where the need for the right pension provider comes into play.

 

For stakeholder pension schemes, employees can choose what percentage of their salary to pay in and the figure can be adjusted if personal circumstances change. The scheme also allows employees to pick particular funds they want to invest in, and switch funds during the life of the pension. The methods for a sound pension provider selection are:

 

Research: Survey how the various funds on offer are administered to minimize pension related issues.

 

Compare costs: Pension providers’ management charges would vary considerably, because pension provision is such a competitive market. In fact, stakeholder providers are only allowed to charge a fixed maximum percentage, so there is very little cost variation on which to base a decision.