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Are your pension charges too high?

In 2001 the UK government introduced stakeholder pensions. The idea was that everyone should have the option of taking out a new personal pension with only a single annual management charge. Initially, this was limited to 1% of your fund value each year, but was increased to 1.5% for the first 10 years of the new plan.

This meant that each contract would, for example, charge you £10 in a year if your contract was worth £1,000. So, the contract's charges relate to how well its investment performance has done. The better it does, the more the fund manager earns. The less it makes for you, the less money is taken from the fund. Older style contracts usually had various "structures" that took out a lot more than the annual management charge of the fund manager.

The effect of this new stakeholder structure was to sweep through the pensions providers' offerings, and soon most new contracts reflected this new style. Also, the knock on effect was that older contracts that were typically more expensive suddenly became less effective than the new contracts coming in, so customers with these older contracts started to move to the new structure.

With the companies providing these plans - to avoid a lot of expensive administration - there were some that changed their existing contracts to the new charging structures, but there were others that didn't. So it can be difficult to tell whether your existing policies are newer style or not. The answer is to ask an IFA to have a look at your pension plan.

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