A new company, Personal Savings & Investments, has entered into the pensions market with what it is calling the U.K.’s cheapest pension. It is looking to create quite a stir in the pensions industry, accusing its rivals of charging consumers £5 billion per year in charges.
Personal Savings & Investments’ Lifetime Account runs for 10 years, and will charge a flat fee of £35 per year, rather than an annual fee based on the size of the fund (typically 1.5%), which is what most pension companies do.
The Guardian looks at some figures, which make this pension seem quite attractive:
Someone contributing £200 a month (in the Lifetime Account) would pay £1,225 in charges and have a fund worth £440,599 after 35 years, assuming annual growth of 7 per cent. Someone putting the same amount into a standard pension plan would have the charges taken out of their fund – cutting its value over 35 years by £139,194, assuming the same growth rate, leaving them £301,405.
The Telegraph explains how the pension works:
One third of your money is invested in a cash account, paying 6 per cent a year. Another pays 100 per cent of any rise in the FTSE100 and the remaining third pays 100 per cent of any rise in the Halifax house price index. Your capital is protected against any falls in these indices.
But the article suggests that this product may not be for those that have a long time to invest. As a third is invested in cash, it is likely to be attractive to those who only have a short time left before retirement, and who want a bit more security. If you’ve got longer to invest and are less cautious with your money then you may prefer to have the cash element invested elsewhere.
The pension is based on a SIPP structure, and has a minimum investment amount of £50 per month, or £500 lump sum.