Sunday Times, Money, May 20 2001

Revealed: true cost of stakeholder

Millions sitting on pension timebomb

INVESTORS in stakeholder schemes could be cheated out of tens of thousands of pounds in retirement because the cost of running the plans can be twice as high as the quoted annual 1% charge, writes Kathryn Cooper.

The government is encouraging savers to take out its flagship pension with the promise that firms will not charge more than 1% a year.

But the rules allow firms to exclude stamp duty and the cost of buying and selling shares from the fee. However, savers who buy a stakeholder pension are not told of the extra costs. Many financial advisers are also unaware of the rules.

The Financial Services Authority, the City regulator, says dealing costs and stamp duty could add up to an extra 1.3% a year, which means that pension savers could in effect pay 2.3%.

Someone who paid £100 a month into a pension fund for 30 years would lose £20,000 because of the extra costs.

The charges will vary according to the type of fund. Standard Life estimates that a British fund will incur dealing costs of 0.7% a year; on a Japanese fund the costs could be 1.1%.