A £200 a month investment in a stakeholder would outperform all but the cheapest 12% of existing per...
A £200 a month investment in a stakeholder would outperform all but the cheapest 12% of existing personal pensions if payments are paid for the full term of 25 years, according to the FSA.
This is entirely due to the difference in charges between stakeholder and conventional pension products.
The value in the tax relief available on a personal pension is not substantial enough to make the product more attractive to basic rate tax payers than the more flexible Isa, according to the FSA's paper on Saving for Retirement - How Taxes and Charges Affect Choice.
The authority states if personal pensions had charges that were comparable to Cat standard Isas, then a basic rate tax payer would only need to make 7% more in contributions to achieve the same end return. The authority noted the Isa also features more flexibility than a pension.
The comparisons in the paper are based on actual charges, using PIA's standard assumed future growth rate of 7% per annum over 25 years.
For higher rate taxpayers, especially those who expect to pay tax at the basic rate during retirement, the pension tax relief is however much more valuable.
The report goes on to say the introduction of the 1% charging cap in stakeholder pensions could offer people an overall better deal in terms of costs, and greater flexibility over contributions.
Stakeholder should also be much better value for those who stop contributing to their pension within five years. For example, a stakeholder would offer returns of nearly 30% more than an average personal pension, assuming a £60 a month contribution over five years.
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