Type: Hybrid self-invested personal pension
Minimum investment: Lump sum £20,000, additional regular premiums from £25 a month
Investment choice: 130 funds from Artemis, BlackRock, BNY Mellon, Fidelity, Henderson, Invesco Perpetual, Investec, J.P. Morgan, Jupiter, Liontrust, M&G Martin Currie, Premier, Schroders, State Street Global Advisers and Threadneedle
Options: Ability to switch to the higher standard charging structure to access other investment options available through the Flexible Transitions Account
Charges: Annual 0.25% for the first £1m invested, 0.1% for any amount over £1m, plus fund charges depending on funds selected. Establishment fee of 1.2 per cent for each 1 per cent initial commission taken by the adviser can be charged over a period of up to five years
Commission: Subject to negotiation with initial, ongoing and ad hoc options, available on factory gate pricing basis for fee-based advisers
LV= has added a low-cost option to its flexible transitions account Sipp. The low-cost option offers access to 130 LV= pension funds from 16 fund management groups and has a 0.25 per cent annual service charge for investment amounts up to £1m. This is 0.3 per cent lower than the standard charging structure for the first £75,000 of the amount invested and 0.1 per cent lower for the next £925,000. At 0.1 per cent, the annual service charge for amounts above £1m is the same as the standard fee structure.
Clients will only benefit from the low fee structure if they start their plan with a single premium of at least £20,000; stay invested in insured funds and do not take any lump sum or income benefits otherwise the standard fee structure will be applied.
Independent Personal Financial Management director Luke Gibbon highlights the restrictions that are imposed to achieve the lower costs. He says: “The new pension plan is launched with a headline rate of a 0.25 per cent service charge, but to get this rate a minimum of £20,000 needs to be invested. The investment is also restricted to a choice of 130 funds from 16 fund managers.”
Gibbon points out that the 0.25 per cent service charge does not tell the whole story in relation to costs. “In addition to the service charge, there are fund management charges which range from 0.1 per cent a year for the State Street UK equity tracker fund to 2.13 per cent a year total expense ratio for the Jupiter Merlin growth portfolio. And of course adviser charges need to be added in addition to the above costs.”
Overall, Gibbon thinks the charges are competitive but not the cheapest in the market.
“The plan is designed to be RDR compliant and although the fund selection is limited, there is good quality and a wide range of funds available that should be suitable for most clients. If a wider choice is required then the service charge will rise by up to 0.3 per cent.”
Turning to the potential drawbacks, Gibbon feels the plan will have a limited market, as it needs a minimum of £20,000 invested. “But once that has been met, additional contributions as small as £25 a month can be added,” he says.
Another possible hurdle for LV= in Gibbon’s view is name awareness, but he adds that the significant television advertising it has recently carried out may help as far as clients are concerned. He also says that although auto enrolment is still a while away, the plan does not lend itself to this new environment due to the initial funding it requires.
“The competition for this plan will come from other big pension providers such as Aviva, AXA, Scottish Widows and Standard Life. As we draw closer to 2013 I suspect that new plans will be launched which will keep the charges competitive. Having said that, a comparison I carried out showed that LV= was just 0.2 per cent a year cheaper than Scottish Widows over the illustrative term of 26 years.”
Summing up, Gibbon says: “One final point I would note is that we now have a service charge, fund management charge, advisor ongoing charge and advisor initial charge. Each provider will have their own service charge, which is likely to reduce as the fund gets bigger, but increase as the investment choice increases.
“Also different providers may have different investment charges for the same fund. This is all explained in the LV= literature but I am not convinced this will give greater clarity to clients in the future.”
Suitability to market: Average
Investment choice: Average