A row has broken out between Now: Pension, PensionBee and Smart Pension over which offers best value following the publication of a Now charges index showing its charges less than half the level of the other two providers.
Now: Pensions’ AE Cost Comparison Index shows workers earning £28,000 and paying a monthly contribution, could be hit with fees over £6,000 over 20 years. Those making a one-off transfer of £28,000 in from another fund could face up to £16,000 of charges.
The table, which looks at an average UK worker paying 8 per cent of band earnings, assumes salary growth of 2.5 per cent and investment returns of 5 per cent a year.
PensionBee CEO Romi Savova has blasted the research as ‘ludicrous’, arguing that Now: Pensions’ customers typically earn less than £28,000, and says it is the only provider that will erode pots down to zero with its annual charge.
She has also questioned the figures, arguing PensionBee’s cheapest plan has a 0.5 per cent AMC, lower than the 0.7 per cent cited in the report. Now: Pensions has responded saying it used the more expensive Tailored Plan because PensionBee’s website describes it as its most popular offering.
Smart Pension has described the research as an ‘artful piece of propaganda’ designed to show Now: Pensions in the best possible light.
Now: Pensions director of policy Adrian Boulding says: “The AE Cost Comparison Index clearly lays out the devastating effect high fees can have on retirement savings. We hope our analysis will encourage employees to shop around for the AE provider that suits them best and look at fee structures over the long-term to ensure they are getting the most out of their hard-earned money. We also recommend that all savers consolidate their funds, to benefit from economies of scale where providers offer these.
“We decided to combine a low management charge with a small monthly admin fee to ensure members aren’t being disproportionally disadvantaged as their savings grow. Our new Cost Comparison Index conclusively shows that our charging structure has a significantly smaller impact on a pension pot than a blunt single charge model.
“The Now: Pensions AE Cost Comparison Index shows PensionBee’s Tailored Plan as their website marks that one out with an asterix and declares it to be their most popular.
“A more direct comparison with Now: Pensions would actually be their 4Plus plan which adopts a similar investment strategy to our default fund. We note that PensionBee charge 0.95 per cent for their 4Plus plan.
“We have produced the Now: Pensions AE Cost Comparison Index to highlight the fact that pension saving is a long-term goal and should not be judged simply by looking back over the first few years of very low contributions. At Now: Pensions we encourage people who have left small pots behind to transfer them to their new provider.”
Savova says: “It is ludicrous for Now:Pensions to suggest they are a cost-effective pension provider. As per our correspondence with the Work and Pensions Committee, Now:Pensions routinely erodes the value of their members’ pensions to £0 – an outcome that is inconsistent with the objectives of auto-enrolment. We would encourage the public to review Now:Pensions’ Trustpilot scores to see what their members think of their charging.
“The Work and Pensions Committee on 22 February questioned Now:Pensions over this unfair treatment of customers, including “how many and what proportion of Now:Pensions members have seen costs higher than returns to date?” To the public’s knowledge, these questions have so far been ignored by Now:Pensions.
“We don’t fully understand whether the table has been accurately compiled, but PensionBee plans start at 0.5 per cent. It would appear that some of the other charges are also misleading, especially where providers offer more than one option. In contrast, Now:Pensions charges routinely exceed 100 per cent.
“It is also worthwhile to point out that PensionBee is not an auto-enrolment provider and this seems to be an auto-enrolment index.”
A Smart Pension spokesperson says: “This is an artful piece of propaganda taken at such an acute angle so as to throw the best possible light on Now:Pensions – and it should only be viewed from this perspective. If you look at any piece of recently-published independent performance analysis, Now is firmly at the bottom.”
| Member Charges | Providers | |||
| Annual Management Charge (AMC) | Additional Charge | Value after 20 years
(monthly contributions) |
Effect of charges
(monthly contributions) |
|
| No Charge | £76,380 | NIL | ||
| 0.30% | + £1.50 pm | NOW: Pensions | £73,424 | £2,956 |
| 0.30% | + 1.8% | NEST | £72,680 | £3,700 |
| 0.50% | Aegon, LGIM | £72,486 | £3,894 | |
| 0.40% | + £2.00 pm | Creative AE | £72,469 | £3,911 |
| 0.60% | Welplan | £71,739 | £5,265 | |
| 0.70% | PensionBee tailored plan | £71,001 | £6,191 | |
| 0.75% | Smart Pension | £70,636 | £6,636 | |
These calculations, assume:
- Salary at start of process: £28,000, which is the national average earnings across full time and part-time staff, calculated by Office for National Statistics
- Salary growth rate: 2.5% pa
- Investment growth rate: 5.0%
- Total contribution pa: 8%
- Qualifying earnings deduction £6,136 pa.
The research also looked at single contribution or transfer-in of £28,000 (equal to one year’s earnings) from another pension plan:
| Member Charges | Providers | |||
| Annual Management Charge (AMC) | Additional Charge | Value after 20 years
(single transfer in) |
Effect of charges
(single transfer in) |
|
| £150,672 | NIL | |||
| 0.30% | + £1.50 pm | NOW: Pensions | £143,407 | £7,265 |
| 0.30% | + 1.8% | NEST | £142,663 | £8,009 |
| 0.40% | + £2.00 pm | Creative AE | £141,071 | £9,601 |
| 0.50% | Aegon, LGIM | £139,735 | £10,937 | |
| 0.60% | Welplan | £137,660 | £13,012 | |
| 0.70% | PensionBee tailored plan | £135,907 | £14,765 | |
| 0.75% | Smart Pension | £134,616 | £16,056 | |