Many Brits are going to be playing their accordions for pennies well into their old age if dire prophecies [1] about the state of UK pension savings are any guide.
But there’s no need to pray for the invention of ever-lasting youth pills – not when you can employ compound interest [2]to help you live the life of a wrinkly Reilly.
Barely got two brass wazoos to rub together? Then you need a pension option that won’t gouge you with high fees, and requires minimal outlay.
And this is where a cheap stakeholder pension [3] can be a smashing solution.
[4]
Why choose a cheap stakeholder pension?
With a stakeholder pension you can invest in a diversified portfolio [5] for as little as £20. A £20 lump sum gets you started, after which you can:
- Never pay in anything ever again, and die poor.
- Pay in £20 or more on a weekly or monthly basis.
- Pay in £20 or more whenever you feel like it.
Indeed, it’s almost too flexible from an iron-willed, saving disciplinarian’s viewpoint.
Stakes alive
Most summaries of stakeholder pensions talk about annual costs of 1.5% for the first 10 years and then 1% thereafter.
But you can do much better than that!
Discount broker Cavendish Online offers a very cheap stakeholder pension from Aviva [6] for a one-off set-up fee of £35.
After that, you’ll just pay the annual management charge (AMC):
- 0.55% AMC up to £49,999
- 0.50% AMC up to £50 – 99,999
- 0.45% AMC £100,000 +
Your contributions can then trickle into a diversified portfolio carved out of the 40 or so pension funds [7] available, which includes a range of index trackers.
True, that’s small beans compared to the choice you get in most SIPPs. Then again, excessive choice is precisely the kind of overkill that sends many running for the hills. Most people are better off with a few decent choices that enable them to spread their risk across key asset classes [8] and be done with it.
Stake charmer
The index trackers [9] in the Aviva stakeholder pension enable you to rustle up a portfolio that includes the following asset classes:
| Equities | Bonds |
| UK | UK Long Gilts |
| US | UK Index Linked Gilts |
| Europe | UK Corporate Bonds |
| Japan | n/a |
| Pacific ex Japan | n/a |
UK Gilts and UK Property are also available, although not as trackers. As there is no additional charge, we can allow a bit of active fund management this time.
The obvious absentee is an emerging markets fund. There’s an ‘International Index Tracking fund’ available that is 10% in emerging markets.
You can find the fund factsheets by clicking through on the fund names here [10]. Choose the Series 2 (S2 funds). Save the factsheets to your desktop as PDFs if they don’t work in the browser.
You can also check out Aviva pension funds on:
Morningstar [11] > Life & Pension > L&P quick rank > Manager: Aviva Life & Pensions UK Limited.
Choose ‘Pension Funds’ instead of ‘All Funds’.
Switching and rebalancing [12] between funds is free, or else you can keep things super simple by using an all-in-one mixed asset fund.
Stake eyes
Another advantage of a stakeholder is that the provider isn’t allowed to charge you an exit fee. So you can always move on to a better pension once you’re able to save more.
The Best Invest Select SIPP is the cheapest pension [13] I’ve found for self-directed investors, but the minimum contributions will put it out of reach for some.
Remember that if you have access to a contribution-matching pension at work then you should probably take it, and all the free money that comes with it.
Otherwise, a cheap stakeholder pension is an excellent option if you’re poorer than a chimney sweep in a smokeless zone. There’s simply no other way you’ll get the same diversification for merely £20.
Take it steady,
The Accumulator