L&G estimates that the average contracted-out pension fund is worth about 24,000 and is urging IFAs to consider switching clients to a company with a tiered annual management charge, starting at 1 per cent and reducing to 0.8 per cent and then 0.6 per cent a year. It says this would help build a bigger pension fund.
L&G says a person with a fund of 24,000 paying gross level contributions of 150 a month could have a pot of 194,400 after 25 years if they switched to a firm with a tiered annual charge. This compares with an estimated 186,700 if they left the plan with a provider on a flat 1 per cent annual charge.
Head of retirement product development Andy Agar says: “Pension providers are currently writing to IFAs’ contracted-out pensions customers regarding their decision to contract out so we are suggesting that, as part of that review, it makes sense for advisers to check the charges under their clients’ contracted-out plan and ongoing contributions.
“Switching pension pro-viders to take advantage of cheaper charges could make a big difference to their fund at retirement.”