Alternative Pension Schemes
Any form of long-term investment is suitable for retirement saving. However, stakeholder and personal pensions have the edge due to their tax advantage. However, all pension arrangements tie up your savings until at least age 55 and restrict the way you can take the benefits.
So, should you want more flexibility, choose alternative investments, such as individual savings accounts (ISAs) which combine flexibility with tax advantages.
Why choose a personal pension rather than a stakeholder scheme?
The government developed stakeholder pension schemes in response to the lack of good-value pension plans available to people who could not join an occupational pension scheme through their work.
In the past, the only alternative if there was no scheme at work or if you were self-employed has been personal pensions that have consistently been found to be inflexible and expensive.
Charges were complicated and those of the worst plans would eat up 40% of your pension fund by the time you retired. Typically, if you switched to another provider, you would face hefty penalties for stopping your old plan. Why would anyone want a personal pension when they can have a lower charging, more flexible stakeholder scheme?
- Investment choice: Low stakeholder charges will limit providers' scope to pay expensive investment managers to run the pension funds. As a result, stakeholder schemes might offer only a limited choice of investments, focusing in particular on tracker funds. If you want a big choice of different investment funds, a personal pension might be the better option. If you want a self-invested scheme, personal pensions are likely to be the only option
- Investment information: Some, but not all, stakeholder providers do not expect to be able to offer individual pensions advice within the low stakeholder charges. If your affairs are complex or you have large sums to invest or transfer, you might look at personal pensions instead. A better option could be to choose a stakeholder scheme and pay separately for fee-based advice.
- Group personal pension schemes (GPPS): If you have a personal pension taken out through a GPPS at work, your employer may be contributing to the plan on your behalf and/or you may get special terms. These could outweigh any disadvantages vis-à-vis stakeholder schemes.
