Stakeholder pensions were designed by the Government to be transparent and low charging, with only one charge of upto 1% of the fund value each year. Because of the low charges, that also means very low commission for advisers, hence one of the reasons for very low take-up. The Government is said to be considering doubling the price cap to 2% but the Consumers Association have undertaken research that has revealed an even bigger take-up flop. According to the Consumers Association 72% of consumers would choose to invest elsewhere if the cap was doubled to 2%.
Our View:
Whilst we believe the general work of the Consumers Association is beneficial, we do not place any weight on the figures that have emerged. Many consumers have no idea what a Stakeholder pension is, regardless of how much it costs. If consumers actually understood the tax benefits and Stakeholder pensions as an integral part of their overall financial planning, the figures would be very different. Many advisers work on commission only and do not offer fee-based advice. This is where Stakeholder Pensions will lose out to other, higher commission paying (and also higher charging) pensions. We believe this will happen, even if the cap is raised to 2%. Whilst everything will soon change in terms of offering fee-based advice, if an adviser wants to call themselves 'independent', this does not help consumers get a good deal now. We believe that consumers should have a choice and decide whether to work on a commission or fee basis, or even a mixture of both. We offer all of these options to clients.