Interactive Investor

‘People have a right to know what their pension costs them’

13th January 2021 16:38

Rebecca O'Connor from interactive investor

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interactive investor comments on the government’s pension charges review.

The government today published the outcome of a review of the default fund charge cap on workplace pension schemes, as well as work on standardised cost disclosure.

The government will:

  • maintain the charge cap of 0.75% (the average charge is 0.48%)
  • Introduce a ban on flat fees for small pots worth up to £100 and will keep this under review
  • Closely monitor voluntary uptake of cost transparency templates with a view to legislation in future

Becky O’Connor, Head of Pensions and Savings at interactive investor, said: “People have a right to know what their pension costs them and for this to be presented clearly and noticeably.

The government review highlights the need for further support for education and understanding around pension charges. Interactive investor research highlights that half of people (48%) with life company pensions don’t know what fees they are paying. With such a significant lack of awareness, people can’t make sensible decisions or compare providers, like-for-like.

“As things stand, whether someone is better off paying a flat fee or a percentage fee depends on where they are in their pension journey.

“It’s important that people understand that flat fees, such as those charged by interactive investor, work out cheaper for larger pension balances. The higher the balance, the more likely someone is to save with a flat fee pension.

“With percentage charges, the amount you pay might start off small, appealing to those in the early days of their pension journey, but build over time into substantial sums.

“By the age of 40, someone on an average salary who experiences modest annual income growth (1%) and investment growth (2.5%) and making 8% pension contributions, will be paying £260 a year in charges, based on the 0.48% average charge figure cited by the government.

“For those with very small pots, as highlighted by the government review, flat fees are not suitable.”

Interactive investor charges a flat monthly fee for its Self-Invested Personal Pension of £19.99 a month. With this charge also comes an ISA, a general investment account, as many free Junior ISAs as you have children - plus one free trade a month. This flat fee can work out cheaper for pension holders with a pension worth £50,000 or more (based on the average scheme charge of 0.48%), depending on where customers are moving their pot from.

Interactive investor currently offers a six-month, fee-free deal for new SIPP customers, giving them time to transfer existing pensions.

Last month, interactive investor published research showing that nearly half (48%) of life company pension customers did not know, either in percentage terms or as pounds and pence, the amount they paid in fees for their pensions. The full result of the Show Me My Money research can be found here https://www.ii.co.uk/pensions/SMMM. 

Furthermore, research in January last year from interactive investor using Opinium Research amongst 2,004 UK adults, suggests that only 54% of UK adults can calculate that 0.5% of £50,000 is £250.  Those aged 55 and over were the least able to work this out (only 51% got it right) – concerning given this is the age group most likely to be hit hardest by percentage-based charging structures on their investments.

Notes to editors

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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