Advisers could substantially increase their clients' pension income at retirement by switching to a ...
Advisers could substantially increase their clients' pension income at retirement by switching to a vehicle with a tiered single-charge structure.
Pensions marketing director at Legal & General Andy Agar said that under a tiered single-charge structure, the annual fee is reduced as a fund grows, which he believes is superior to a flat charging structure of 1% per year.
Some providers are giving their current customers the benefit of stakeholder equivalent charges but most of these are capped at a flat 1% per year charge, he noted.
For example, Agar said, a male transferring £25,000 into an L&G tiered charged individual pension and paying ongoing pension contributions of £125 per month for a further 35 years, instead of sticking to a 1% fee, could buy an extra £2,098 per year in pension income at 65.
'Even though a flat 1% per year charge may be lower than their old pension charges, the downside is that it will still cost significantly more in pension charges than a plan with a tiered charge which reduces as funds grow,' he added.
Simon Farrant, product research manager at Towry Law, said tier charging systems are basically a loyalty bonus scheme designed to attract large pension contributions and transfers.
'The disadvantage of a tier charge system is that it may discriminate against smaller funds,' he noted. 'It is best suited to clients who can afford to make larger contributions as the charges go down as the amount of money in the fund increases.
'Investors have to stick with a particular provider to gain the value advantage of such a scheme.'
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