Stakeholder pensions questioned

Stakeholder pensions do not offer the cheapest pension option, new research has claimed.

11:51 22 September 2005

Stakeholder pensions do not offer the cheapest pension option, new research has claimed.

A survey by Money Management magazine found that stakeholder options are often not the best choice for a pension plan, despite the apparent benefits of low charges.

Unless the figures where restricted to the shortest time period of five years stakeholder options were often out-performed by the industry average. The survey found that stakeholder options often took a greater proportion of a pension fund's value than other pension policies.

"Many people believe that stakeholder is the obvious option for an individual pension, because it has low charges. Our research shows this is just not the case," Janet Walford from Money Management told Reuters.

Over 25 years the lowest charging standard policy would take 11.8 per cent of a fund's value, compared to the 14.6 per cent taken by a stakeholder option at one per cent. Similarly an industry average policy would take 15 per cent of a fund's value, less than the 15.8 per cent taken by a 1.5 per cent stakeholder policy.

Among the other pension options, property-based funds continued to show good performance. In five years the average property-based fund has grown by 10.6 per cent and by 9.1 per cent over 15 years.

Returns on many fund-based policies were down on figures five years ago but many plans still offered annual growth of around ten per cent.

Ms Walford said that current returns were "very reasonable" given the current economic climate but recommended that consumers select their portfolio carefully to see the best returns.