AJ Bell is the latest provider to launch a ready-made pension service, which aims to simplify the process of saving for retirement.
The investment platform describes the new service as “low cost” and “hassle-free”, allowing savers to contribute new retirement savings and combine existing pension pots.
In launching this service, AJ Bell follows in the footsteps of investment platforms like PensionBee, Wealthify and Nutmeg. Lloyds Bank also unveiled a similar pension service last month, becoming the first high-street bank to move into the ready-made pension space.
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We look at how AJ Bell’s offering compares in terms of fees, investment choice and service. Plus, is a ready-made pension service right for you?
How does AJ Bell’s ready-made pension work?
AJ Bell allows investors to choose between three growth funds, each with a different risk appetite (cautious, balanced and adventurous). There is also a responsible investment option. You don't need to choose your own investments. Instead, your nest egg is held in the ready-made fund.
Ready-made services like this can be a quick and convenient option for savers who don’t have the time or investment knowledge needed to research individual investments themselves – for example, in the form of a self-invested personal pension (SIPP).
The service also allows savers to track down old pension pots and consolidate them into a single account. Charlie Musson, managing director at AJ Bell, says that consolidation can “massively simplify retirement saving for those customers, taking the hard work out of managing multiple pension accounts”.
Pension consolidation has been a big theme in the industry for several years now, as concerns about the number of lost pots have prompted the government to look into potential reforms.
For example, in his Spring Budget earlier this year, chancellor Jeremy Hunt said the government would continue to pursue “pot for life” pension reforms, which would allow employees to take their pension pots with them when they move jobs.
The government is also developing a pensions dashboard, which will allow savers to keep track of all their pots in one place. The project has been plagued by delays, but pension schemes will finally start connecting to the dashboard later this year.
Despite this, there is still no date for when the dashboard will launch to members of the public. With this in mind, pension consolidation services like the one offered by AJ Bell could prove attractive to savers who are looking to simplify their retirement planning.
Indeed, the average worker switches jobs several times in their career, and it's easy to lose track of the pensions they have paid into along the way.
One in five workers believe they have lost a pension pot, according to analysis from the Centre for Economics and Business Research. This amounts to an estimated £50 billion in misplaced retirement savings – a staggering sum.
“The service finds pensions based on the name of the customer’s former employer or the name of the provider they opened the pension with," AJ Bell explains, “although not all pensions can be found and combined this way and some can’t be transferred without financial advice."
The investment platform will carry out the admin on your behalf, “making combining pensions hassle-free for customers," it adds.
Savers can make one-off payments into their AJ Bell ready-made pension by debit card. They can also set up automatic payments in the form of a monthly direct debit.
AJ Bell will claim basic-rate tax relief (20%) on any money you pay in. If you are a higher or additional-rate taxpayer and are entitled to a higher rate of pension tax relief, you will need to claim the excess amount from HMRC directly through your tax return.
What fees does AJ Bell charge?
Customers pay an all-in-one flat fee of 0.45% per year, which covers both the platform service fee and the fund management fee. There are no additional charges for buying and selling investments.
If you opt for the responsible investment option, you will have to pay a higher fee of 0.60%.
The pension finding and consolidation service is included in this all-in-one fee too. AJ Bell says this makes the service “one of the cheapest pension finding and consolidation products available to UK savers”.
How does AJ Bell’s pension compare to others on the market?
AJ Bell’s pension service is competitively priced compared to other similar products on the market. Its all-in-one investment management fee means it is one of the cheapest offerings on the market overall.
| Provider | Investment management fee | Account fee | Transaction fee |
|---|---|---|---|
| AJ Bell | 0.45% all-in flat fee (0.60% for sustainable funds) | No fee | No fee |
| Lloyds Bank | Up to 0.24% | 0.30% or £5 a month | 0.14% |
| PensionBee | Between 0.50% and 0.95% depending on the plan. The fee on savings over £100,000 is halved. | No fee | 0.04% |
| Wealthify | 0.60% | 0.16% for original plans and 0.70% for ethical plans. | No fee |
| Nutmeg | Between 0.45% and 0.75% on the first £100k, depending on the fund. Between 0.25% and 0.35% on savings above £100k. | No fee | No fee |
With its four options (three growth funds and a responsible investment option), AJ Bell is on a par with providers like Nutmeg in terms of the amount of choice it offers. Nutmeg also has four plans – “fully managed”, “smart alpha”, “socially responsible” and “fixed allocation”. PensionBee offers more choice, with eight different ready-made pension plans.
Meanwhile, Wealthify asks you to select your risk tolerance from five different options (cautious, tentative, confident, ambitious and adventurous), and allows you to choose between an “original” and an “ethical” version.
Lloyds, on the other hand, offers less choice than the other providers. Working with its partner Scottish Widows, it is guided by your age and the date you are planning to retire. As you approach retirement age, it moves you into lower-risk investments.
Is a ready-made pension right for me?
Before opening a ready-made pension, there are several important questions you should ask yourself. First of all, do you need a personal pension or would you be better off upping your workplace pension contributions?
If you are still working and earn at least £10,000 per year, your employer is legally obliged to enrol you into a workplace pension scheme by default. Under auto-enrolment rules, 8% of your salary will be contributed to your pension. Your employer has to contribute a minimum of 3%, and you contribute the rest.
You can opt out of your workplace pension scheme, but it is often unwise to do so. It could mean losing out on contributions from your employer as well, which is essentially free money. Opting out also means losing valuable tax relief from HMRC, and the potential for long-term investment growth.
Some employers offer generous pension perks to incentivise their employees. For example, if you increase your pension contributions, some employers will match this up to a certain level. As such, you should look into maximising your workplace pension contributions before opening a personal pension scheme.
If you are self-employed or want to set up a private pension for another reason, you should weigh up the pros and cons of a ready-made pension versus a SIPP.
A SIPP gives you more flexibility and control over your investments. You can take a DIY approach, selecting which funds, stocks, bonds or other assets to include yourself.
However, a ready-made pension might be a better option if you don’t have the time or the investment expertise needed to manage your pension yourself.
Should you consolidate your pension pots?
Think carefully before consolidating your pension pots. Some of your old workplace pensions might come with valuable benefits that you wouldn’t want to lose. For example, if you have a defined benefit scheme (also known as a final salary pension), this is not something you would generally want to give up.
Some small pots also come with privileges. For example, you can cash out on a pot under £10,000 without triggering the money purchase allowance – a restriction that limits the amount of tax relief you are eligible for once you start accessing your pension. You can use this ‘small pots rule’ three times for personal pensions.
That said, there can be benefits to consolidating smaller pots in particular. “Combining pensions into a single ready-made pension account will allow customers to see all their retirement savings in one place," says Charlie Musson, managing director at AJ Bell. This can make them easier to keep track of, reducing the administrative burden.
Consolidating your pension pots may also help you save on fees. Modern auto-enrolment schemes have a charge cap of 0.75% per year, but older schemes can charge significantly more than this. An FCA paper published in 2019 suggested some schemes were charging as much as 2.4% per year.
Fees erode your investment returns, so reducing them as much as possible is a good way to help protect your pension pot.
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