Pension Case Studies

Private Pension Problem

Arthur was 22 and had recently graduated from University and had started work for an employer in the conservation sector who was offering him membership of the company's Stakeholder Private Pension scheme. The employer was not proposing to make contributions on Arthur's behalf but he could make personal contributions to the scheme if he chose. Arthur understood that the earlier he started making payments into a pension the better it would be for him in the future, however was unsure whether the Stakeholder scheme offered was the best course for him. He approached us to advise him on private pensions, what his options were and what he should do.

Solution

We explained to Arthur that a Stakeholder Private Pension was a low cost private pension introduced by the government in 2001. Stakeholder schemes are primarily designed for individuals who wish a basic pension savings contract, which normally do not include any costs for financial advice. The fund range is usually fairly limited and the government has stipulated that charges for the schemes must be low - 1.5% in the first ten years reducing to 1% after that - with no charges applicable on transferring out of the scheme. All employers with more than five employees are required to offer a staff pension scheme and many opt to offer a basic Stakeholder scheme to meet their legal requirements.

We then explained that there was an alternative to a Stakeholder Scheme and that was to take out a private pension in the form of a Personal Pension with an independent provider. This private pension could be structured in such a way as to offer Arthur all the low cost attributes of a stakeholder contract while also including the cost of any financial advice and allowing a wider choice of investment options - such as the ability to invest in a wider selection of investment funds including, in Arthur's case, the ethical ones he was interested in.

Arthur also considered that a decision about his pension was something that should not be taken without appropriate advice, and was happy that the fee for this could be included in the contract. He was attracted to the possibility of investing his pension in the funds of his choice and happy with the low charges we were able to obtain for his pension contract. He therefore concluded that the Personal Pension was more suitable for him than the stakeholder being offered and instructed us to establish a Personal Pension on his behalf.

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