The regulator has shown in the past that it is not afraid of more radical change to the personal pensions market.
The introduction of stakeholder pensions in 2001 was designed to create a cap on maximum annual management charges and remove upfront fees and exit penalties. Furthermore, it arguably represented the origins of auto-enrolment (AE), as employers with five employees or more were forced to offer access to a group stakeholder pension to their staff. However, unlike AE, there was no requirement for employers or employees to contribute.
The latest move by the FCA appears to accept that its previous flagship scheme is now outdated. The paper made reference to the disparity in charging caps between stakeholder pensions and workplace schemes: for the former, a maximum of 1.5 per cent per annum for 10 years and 1 per cent per annum thereafter, compared with 0.75 per cent a year for qualifying AE schemes.
Although stakeholders became the popular choice between 2001 and the RDR – at which point its charging structure flew in the face of the new remuneration regime – a number of old-style personal pension plans with varying charging levels are still in operation. Money Management’s annual personal pension survey analyses both personal and stakeholder pensions, although the vast majority fall into the former camp.
The survey features a reduced number of plans than in previous years. Historically, with-profits performance data from some providers could be obtained from their Prudential Regulation Authority returns, under section F59 requirements. But recent reporting changes have meant firms are no longer obliged to disclose these figures.
This does, however, mean that all the information surveyed has been provided as at 1 January 2018, instead of a significant proportion of statistics being dependent upon the point at which firms file their annual accounts.
Persisting with with-profits
With-profits funds’ relative resilience has confounded many doubters, and performance figures for contributions of £200 per month can be found in Table 2. These are measured over five, 10, 15 and 20-year periods in the run-up to retirement and show the open market option, after all charges, as at 1 January 2018.
Some results indicate sizeable returns. The top performer over five years, LV=, mustered annual growth of 9.4 per cent and the fund has also shown consistency over the other measured periods. This has also been the case for Wesleyan. The firm that made its name serving medical, teaching and legal professionals achieved annualised growth of at least 6.9 per cent over every period.
Both funds have witnessed an uptick in performance in the past year, especially the Wesleyan product: its open market option has increased by more than £7,000 for plans spanning 20 years.
