Smart Pension is the provider whose charges have the biggest impact on pension pots after 20 years of contributions, research has shown.
According to the auto-enrolment cost comparison index, launched today (July 26) by workplace pension provider Now: Pensions, after two decades of paying monthly contributions, Smart Pension members have a pension pot worth £70,636 and paid £6,636 in fees.
This is based on an imaginary saver with an initial salary of £28,000, a salary growth rate of 2.5 per cent per year, an investment growth of 5 per cent, and a total contribution of 8 per cent.
Added to this was Smart Pension's annual management charge of 0.75 per cent.
On the other hand, Now: Pension savers, which pay an AMC of 0.30 per cent, plus an additional charge of £1.50 per month, would have a pension worth £73,424, and paid £2,956 in fees.
However, the master trust's fee structure has been criticised by Labour MP Steve McCabe, who alleged the Now: Pensions’ structure had “eaten away the entire pot of some of their customers”.
Fintech consolidator PensionBee also warned of "an unacceptable level of risk" that a large proportion of pots in Now: Pensions will be eroded to zero by its charges.
This is particularly true for small pots.
Member Charges | Providers |
|
| |
Annual Management Charge (AMC) | Additional Charge |
| Value after 20 years | Effect of charges |
(monthly contributions) | (monthly contributions) | |||
0.30% | + £1.50 pm | Now: Pensions | £73,424 | £2,956 |
0.30% | 1.8% | Nest | £72,680 | £3,700 |
0.50% |
| Aegon, LGIM | £72,486 | £3,894 |
0.40% | + £2.00 pm | Creative AE | £72,469 | £3,911 |
0.60% |
| Welplan | £71,739 | £5,265 |
0.70% |
| PensionBee tailored plan | £71,001 | £6,191 |
0.75% |
| Smart Pension | £70,636 | £6,636 |
Auto-enrolment was introduced in late 2012 and to date 10m employees have been enrolled into a workplace pension.
The minimum pension contribution rate increased in April from 5 per cent to 8 per cent.
Auto-enrolment providers can not charge more than 0.75 per cent on a default fund, but the same does not apply to other personal pension funds.
Now: Pensions also compared the charges on a transfer-in of £28,000 (equal to one year’s earnings) from another pension plan, which showed that Smart Pension members would pay the highest fees after a 20-year period, at £16,056.
A spokesperson at Smart Pensions criticised the angle taken by the research, saying: "If you look at any piece of recently-published independent performance analysis, Now is firmly at the bottom."
Member Charges | Providers |
| ||
Annual Management Charge (AMC) | Additional Charge | Value after 20 years (single transfer in) | Effect of charges (single transfer in) | |
0.30% | + £1.50 pm | NOW: Pensions | £143,407 | £7,265 |
0.30% | + 1.8% | NEST | £142,663 | £8,009 |
0.40% | + £2.00 pm | Creative AE | £141,071 | £9,601 |
0.50% |
| Aegon, LGIM | £139,735 | £10,937 |
0.60% |
| Welplan | £137,660 | £13,012 |
0.70% |
| PensionBee tailored plan | £135,907 | £14,765 |
0.75% |
| Smart Pension | £134,616 | £16,056 |
According to Mr Boulding, director of policy at Now: Pensions, the index “clearly lays out the devastating effect high fees can have on retirement savings”.
He said: “We hope our analysis will encourage employees to shop around for the auto-enrolment provider that suits them best, and look at fee structures over the long-term to ensure they are getting the most out of their hard-earned money.
“We also recommend that all savers consolidate their funds, to benefit from economies of scale where providers offer these.”
Mr Boulding noted that Now: Pensions opted for its current structure “to ensure members aren’t being disproportionally disadvantaged as their savings grow”.
He added: “Our new cost comparison index conclusively shows that our charging structure has a significantly smaller impact on a pension pot than a blunt single charge model”.
maria.espadinha@ft.com
What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.
