Why Can’t I Have My Personal Pension in a No Charges Savings Account?

Written by Karen Bryan

Money CalculationsI’m paying an annual 0.8% charge to Standard Life for my stakeholder pension. I make monthly contributions by direct debit and  I’ve been in the same investment fund for years. The only action I see from Standard Life is when they send me an annual statement. Even if I did want to change investment funds, I could do that online myself.

I suppose I’m fortunate that I get an 0.2% discount on the maximum annual charge that companies running stakeholder pensions are allowed to charge. However, stakeholder pension providers can charge a maximum of 1.5% in annual fees for the first ten years.

But why is it a percentage fee? Whether I have £10,000 or £100,000 in my stakeholder pension, Standard Life is doing the same amount of work. I think it should be a flat, or at least capped fee.

It’s too complicated for me to work out how much of the value of my stakeholder pension I’ll lose in annual charges. According to this BBC article, someone paying in £1,000 a year to a pension for 40 years, would experience a loss in value of their pension of between 14-40% through charges. Taking the median loss of 27% due to fees, means that the benefit of the 20% tax relief (for basic rate taxpayers) on pension contributions is more than wiped out.

I wish that I could put my pension pot, along with the tax relief, into a standard savings account. Conventional wisdom would say that a savings account would yield a lower average annual return, over a long period, than a stockmarket based investment, I’m not convinced that the stockmarket return would be much higher after deduction of fees plus there’s a risk that your fund could drop in value.

I believe that I could have made an average of at least 5% per annum from having my pension pot in fixed rate interest savings accounts since I started paying into the pension in 1999. I’ve earned interest rates as high as 6% during the lifetime of my stakeholder pension. I currently hold a NS&I Growth Bond paying a fixed rate of 4.6% until November 2014. 5% is the mid growth figure being introduced in April 2014 by the Financial Services Authority for pension growth projections, so sounds like a reasonable return.

Having my pension pot in a fixed rate savings account would also have the benefit of me knowing precisely the value of my pension pot at the time I plan to retire. At present, the value of my stakeholder pension depends on the price of the units of the investment fund in which it’s held.

Unfortunately, the UK Government doesn’t give me the option to put my pension pot into an ordinary savings account. In order to receive the tax relief, the pension scheme into which I pay must meet certain criteria, and standard savings accounts don’t qualify.

I could put my current stakeholder pension pot into a deposit (savings) account through a Self Invest Personal Pension (SIPP).  The rates of interest on these SIPP allowable deposit accounts are lower than what’s on offer in standard savings account. However, SIPPs can have set up fees and the annual fees can be higher than a stakeholder pension, depending on the size of your pension pot.  In my opinion, based on hours of reading about SIPPs and ending up totally confused, a “normal” person would probably have to pay a financial adviser to guide them through the bewildering SIPP maze.

Some people will want to invest their personal pensions in the stockmarket for the higher potential returns.. Fair enough that there are charges for this type of investment.

However, I can’t see any legitimate reason why I should have to pay out hundred of pounds a year to keep my pension pot in a SIPP allowable deposit account. I believe that there should be the alternative of a no, or very minimal, charge retirement savings account wrapper for people who’d prefer to have their pension pots in straightforward no risk standard savings accounts.