Moneywise Pension Awards 2016
It is now possible to do what you like with your pension savings. Rather than being railroaded into buying an annuity when you retire, you can choose to keep your money invested and draw an income from it or you can take it as cash. And there is always the opportunity to buy a guaranteed income with an annuity.
These so-called pension freedoms – which kick in as soon as you turn 55 – were introduced in April last year, and providers say they are already having a big effect on our willingness to save for retirement. Between April 2015 and February 2016, online investment platform Hargreaves Lansdown reported a 34% increase in total contributions to its self-invested personal pension (Sipp), a 59% increase to the total number of contributions and a 19% increase to the average size of contributions.
Nathan Long, a senior pension analyst at Hargreaves Lansdown, says: “No longer do people felt straitjacketed when it comes to their choices in retirement and when they access their savings. Contribution increases are the ultimate endorsement of this policy change.”
Whether you’ve been committed to your pension for years and are simply after some fresh ideas, or you are looking to kickstart your pension saving, the Moneywise Pension Awards 2016 will set you on the right track, with its recommendations for the best savings products and the investments to put in them.
Best personal pension provider
Winner: Royal London
Your first port of call should always be your workplace pension. It should be straightforward, low cost and benefit from employer contributions. However, if you don’t have access to a scheme, or are looking to consolidate a number of pension pots, it may make sense to set up a new personal pension.
This award is for the best personal pension from an insurance company and the judges were looking for excellent breadth of investments at a low cost with slick customer service.
The company that takes the award for the second year running is Royal London. Commenting on our winner, Patrick Connolly, chartered financial planner at IFA Chase De Vere and one of our awards judges, says: “Royal London consistently provides exceptional service. Some other personal pensions have a wider range of fund options, but there is more than enough choice of good quality funds and its product is very flexible and has competitive charges.”
Coming a very close second is Aviva. Judge Nick McBreen, an IFA at Worldwide Financial Planning, says: “Aviva has to be one of the best kept secrets in terms of fund management. Apart from the obvious brand awareness and financial strength, the range of pension product offerings gives plenty of choice from the very basic stakeholder-style simple personal pension right through to a Sipp with pretty much all the bells and whistles.”
Best performing funds within a pension
The size of your pension won’t just be determined by the amount you pay in. The performance of the funds that your money is invested in will also be a major driver of your eventual wealth.
Choosing the right investments may be daunting for less experienced investors and in recognition of this, providers offer default funds for those that don’t want to make the decision. However, if you want to take more control and potentially make better returns, our fund winners could be a good place to start.
Mixed investment 20%-60% shares
Winner: Kames Capital - Kames Ethical Cautious Managed fund
Runner-up: Standard Life Investments - SLI Dynamic Distribution fund
Funds in this sector can only invest between 20%-60% of their assets in equities and they must hold a minimum of 30% in cash or fixed interest investments, such as corporate bonds and gilts. The fund sector was previously known as ‘cautious managed’ and is a popular option for lower-risk investors.
Taking this award for the second year in a row is the Kames Ethical Cautious Managed fund. Commenting on the fund, Mr McBreen says: “One could be forgiven for shying away
from funds with the moniker of cautious managed due to their lacklustre performance, but not this example. A return of 43% over five years way outstrips the sector, which has struggled to post returns of 25% over the same timeframe.”
He adds: “While this is a feather in the cap for Audrey Ryan and her team, the key factor here is that the fund demonstrates that money can be made when taking an ethical stance on what is held in the portfolio and is an endorsement of active management and the role it can play in any portfolio.”
The fund that takes the highly commended position is SLI Dynamic Distribution, which has achieved a return of just over 45% over five years. Commenting on its performance, Mr Connolly says: “This is a true multi-asset fund, compared to most others in this sector that hold just equities and fixed interest.”
The SLI fund has exposure to commercial property and emerging market debt, for example. “This diversification should be beneficial for long-term pension investors,” says Mr Connolly, “although with the current fall out in commercial property it could suffer in the short term when others in the sector aren’t affected.”
Mixed investment 40% - 85% shares
Winner: Henderson - Henderson Institutional Global Care Managed fund
Runner-up: Baillie Gifford - Baillie Gifford managed fund
Funds in this sector need to have between 40% and 85% of their assets in equities. This makes them suitable for investors who are prepared to take some risk and have the time to ride out the peaks and troughs of stock market investing.
The winner this year is Henderson Institutional Global Care Managed – another fund with an ethical stance. Over five years, the fund has returned 49%. “This fund is all about investing in companies across the world that actively manifest activity that adds positively on an environmental or social level in their locale,” says Mr McBreen.
“The fund aims for long-term capital growth from a mix of assets, and it is really interesting to see yet another fund with an eye for responsible investing featuring as a star performer,” he adds.
Baillie Gifford Managed takes the runner-up position this year. Mr Connolly says: “This is an ideal core pension fund. Baillie Gifford’s focus on growth, with the fund invested predominantly in equities, and taking a long-term approach, should provide competitive returns for investors.” In the past five years the fund has made 42% for investors.
Winner: Unicorn Asset Management - Unicorn Mastertrust
Runner-up: Investec - Investec Managed Growth fund
This is another multi-asset sector, but in this case there are no limits stipulating how the holdings in the fund are divvied up.
Our winner – the Unicorn Mastertrust – takes the award for the third year on the run. Mr Connolly says: “This is a small, but quite interesting fund. It invests in a range of underlying investment trusts, providing a global spread of growth assets. The high level of diversification should provide some protection for pension investors without significantly impeding growth prospects.”
Justin Modray, judge and founder of Candid Financial Advice, adds that it provides investors with a “convenient way to invest in the [investment trust] sector”. In the past five years, the fund has returned 44% to investors.
Coming in second place is Investec Managed Growth, which is up by 39% over five years. “Snapping close on the heels of the Unicorn Mastertrust, Philip Saunders and Max King have ground out some pretty reasonable five-year numbers,” says Mr McBreen. “With a strong emphasis on the UK, North American and European stocks, the fund stands out above the pack in this sector. The ability of the managers to handle risk and volatility is evident from their consistency of quality performance.”
UK equity income
Winner: Maitland - MI Chelverton UK Equity Income
Runner-up: Unicorn Asset Management - Unicorn UK Income fund
The increasing popularity of income drawdown since the introduction of the pension freedoms means pensions are no longer just about saving – many investors will take their plan into retirement with them.
For this reason, Moneywise decided it was important to introduce a new UK Equity Income category to help investors who want to use their fund to generate an income. Of course, these funds aren’t just for those who need an income. If you reinvest dividends, these funds can also be an excellent driver of growth.
The winner of this inaugural category is MI Chelverton UK Equity Income, which has made 92% for investors over the past five years.
Mr Connolly says: “This fund invests predominantly in mid- and small-cap companies and so has benefited significantly as these shares outperformed for a number of years, while it also produces a level of income.”
However, he sounds a note of caution. “While the fund managers are good stock pickers, ongoing concerns following the EU referendum could hit small- and mid- cap stocks and, if so, this fund will suffer.”
Unicorn UK Income takes the runner-up prize in this category. Mr Connolly says: “The fund managers are small-cap specialists and have performed very well as mid- and small-cap stocks outperformed.
“But while pension investors should be rewarded over the long term, they need to understand that this is liable to be a volatile fund and can suffer from significant short- term losses.”
In the past five years, this fund has returned 77%.
Best Sipp for beginners
Runner-up: Hargreaves Lansdown
A self-invested personal pension (Sipp) from an online investment platform offers savers access to a full range of investment funds, as well as investment trusts and, in many cases, shares. But all platforms operate differently with varying charging structures, so it is important to do your research before you make your choice.
How much money you have or pay in will play a big part, but your trading habits will make a difference too. It’s not just about money, though – Sipp investors need to be in charge and in control of their investments so ease of use and support tools will also be important.
Our judges voted Bestinvest the best Sipp for beginners – defined as individuals starting a savings plan from scratch and paying in around £200 a month.
Mr McBreen says: “For a client looking to get going with a regular funding Sipp, the functionality of Bestinvest – combined with a pretty fair charging structure – makes this a ‘go-to’ choice.
“The added benefit of a fall-back position of using a model portfolio will appeal to less confident investors and mobile capability via smartphone is a big plus point for the younger investor.”
Taking the runner-up position is Hargreaves Lansdown. Judge Mark Stone, financial planning director at Whitechurch Financial Consultants, says: “Hargreaves Lansdown has a well-charged contract, with good online flexibility together with the backing of the Vantage platform investment choice.”
Best Sipp for larger portfolios
Winner: interactive investor
Runner-up: AJ Bell Youinvest
The best Sipp for investors who may have a substantial portfolio, defined as £200,000-plus, to transfer is Interactive Investor (the company that owns Moneywise). Mr McBreen says: “The platform has a strong track record and is pretty easy to use bearing in mind the range of features, which include tracking and analytical tools; in-depth research and access to some really top drawer model portfolios.”
Mr Modray also remarked that it is “very cost effective with a fixed annual Sipp fee and an excellent choice of investments.”
AJ Bell YouInvest takes the highly commended position. Mr Modray says it provides “a user-friendly platform with decent investment choice that is reasonably cost-effective”.
Best Sipp for income drawdown
Winner: AJ Bell Youinvest
Runner-up: interactive investor
You may not just use a Sipp to save for retirement: you may use it to manage your finances into retirement too by taking advantage of its income drawdown facility. This means that in addition to annual platform charges and fees for trading, investors will also need to pay a charge for drawing an income from their investment.
However, Mr McBreen says investors, particularly those who are managing their portfolios without advice, should not to let their decision be too heavily swayed by cost. “Investors must be wary of looking at the ‘cheapest’ product and making a false assumption that it is best.
They need to look through the surface cost and charges to establish just what they are buying into. Is there the potential for the Sipp to deliver what they want and need and fit with their understanding of and appetite for risk?”
The winner in this category is AJ Bell YouInvest. Mr Stone praises AJ Bell for its track record in this area. “It has investment flexibility and the experience of running a drawdown arrangement.” Mr Connolly adds: “This is a straightforward and comprehensive product from a reliable and progressive product provider. It is a good choice for income drawdown investors and is likely to get better as AJ Bell continues to improve its service proposition.”
Coming in a very close second is Interactive Investor. Mr McBreen says: “It has the tools, the research capability, model portfolios to use, and the mobile functionality to make it a sound proposition.”
Best mainstream annuity provider
Winner: Legal & General
Runner-up: Canada Life
Brexit has given annuity rates another blow but while you might be disappointed with the deals on offer, they continue to provide something that a drawdown investment cannot and that is the certainty of a guaranteed income.
So while the pension freedoms mean retirees are no longer forced into buying annuities, they will continue to play a central role for less wealthy and/or risk averse retirees. In many cases, retirees may not use their whole pension to buy an annuity, using just a part of it to guarantee a portion of their income.
After receiving a highly commended award last year, the winner for 2016 is Legal & General. Mr Stone says the insurer is: “the most competitive in all situations and has the financial strength to survive”, while Mr Connolly adds that it provides “a consistently good level of service”.
The runner-up in this category is Canada Life, which Mr Stone describes as “a good all-round annuity provider”.
Best enhanced annuity provider
Winner: Just Retirement
Any retiree shopping around for guaranteed income should check to see if they are eligible for an enhanced annuity from a specialist provider that will be able to take your health and lifestyle into account. This means that if you have any medical problems or lifestyle factors, such as being overweight or smoking that will negatively impact on your life expectancy, you could be eligible for a higher income.
Our judges voted Just Retirement the winner in this category for the second year in a row. Mr McBreen says: “The name Just Retirement is synonymous with enhanced annuities and impaired life business. It has loads of experience and good support people.”
Mr Connolly describes the firm as “the clear market leader in the sphere”. The runner-up this year is LV=. Mr McBreen says: “LV= continues to raise its profile and features strongly in this arena. It is very competitive with all the usual features on the menu.”
Pensions innovater of the year
Winner: Retirement Advantage
This is a special new award for providers who have made product developments that are genuinely beneficial to those who are either saving for or accessing their retirement income.
The winner is Retirement Advantage in recognition of its new Retirement Account, which has been developed to help retirees make the most of the opportunities presented by the pension freedoms. The plan enables retirees to combine an annuity with flexi access drawdown in one plan – enabling retirees to combine the certainty of guaranteed income with the flexibility afforded when some money remains invested.
“Retirement Advantage has gripped the challenge and come out with an offering including an annuity option under drawdown rules with flexibility on death benefits and succession planning,” says Mr McBreen.
The annuity is medically underwritten, meaning those retirees who have health problems could be eligible for a higher rate. The investment platform for the drawdown side of the plan is not on the scale of a Sipp or Isa platform. However, account holders are able to choose between low-cost passive funds or more expensive actively managed funds, with options for cautious, balanced and adventurous investors.
Mr McBreen adds: “These newer-style annuity/ drawdown structures will become mainstream very quickly. Annuities are not dead – just alive and kicking in a much improved format.”
Our personal pension, Sipp and annuity categories were judged by a panel of independent financial advisers.The Sipp category shortlist was based on best buy tables for a range of portfolios from Comparefundplatforms.com, while the annuity shortlists were based on annuity best buy tables from JLT Pension Decision.
Our fund awards were based on the top performing funds across the four sectors listed over three, five and seven years. Funds charging 1% or more were eliminated. The data for this analysis was provided by Morningstar.
The pension innovator of the year award was judged by the Moneywise editorial team, based on nominations from our judging panel.
Investment trusts are companies that invest money in other companies and whose shares are listed on the London Stock Exchange. As with unit trusts, private investors buying shares in an investment trust are buying into a diversified portfolio of assets (to reduce risk), which is managed by a professional fund manager. Investment trusts differ from unit trusts in two important ways: they are listed on the stockmarket and so are owned by their shareholders and are closed-ended funds with a finite number of shares in issue. This means the share price of investment trusts might not reflect the true value of the assets in the company (known as the net asset value, or NAV) and if the NAV value of a share is £1 and the share price in the market is 90p, the trust is said to be running a discount of 10% to NAV. But this means the investor is paying 90p to gain exposure to £1 of assets. Investment trusts can also borrow money and use this money to buy investments. This is known as gearing and a geared trust is thought to be more of an investment risk than an ungeared one.
Like a self-select ISA but for pensions, self-invested personal pension is a registered pension plan that gives you a flexible and tax-efficient method of preparing for your retirement. It gives you all sorts of options on how you put money in, how you invest it and how it’s paid out and offers a greater number of investment opportunities than if the fund was managed by a pension company. SIPPs are very flexible and allow investments such as quoted and unquoted shares, investment funds, cash deposits, commercial property and intangible property (i.e. copyrights, royalties, patents or carbon offsets). Not permitted are loans to members or people or companies connected to the SIPP holder, tangible moveable property (with the exception of tradable gold) and residential property.
The term is interchangeable with stock exchange, and is a market that deals in securities where market forces determine the price of securities traded. Stockmarket can refer to a specific exchange in a specific country (such as the London Stock Exchange) or the combined global stockmarkets as a single entity. The first stockmarket was established in Amsterdam in 1602 and the first British stock exchange was founded in 1698.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
A financial adviser who is not tied to any financial services company (such as a bank or insurance company) and is authorised by the Financial Services Authority (FSA). They can advise on financial products to suit your circumstances. All IFAs have to give consumers the choice of paying by fees or commission and have to explain which would best suit the customer in that particular instance. Also, if commission is paid either by the client or the financial service provider recommended by the IFA, the IFA must disclose what that commission is.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
The familiar name given to securities issued by the British government and issued to raise money to bridge the gap between what the government spends and what it earns in tax revenue. Back in 1997, the entire stock of outstanding gilts was £275bn; by October 2010 it had surpassed £1,000bn. Gilts are issued throughout the year by the Debt Management Office and are essentially investment bonds backed by HM Treasury & Customs and considered a very safe investment because the British government has never defaulted on its debts and this security is reflected in the UK’s AAA-rating for its debt. Gilts work in a similar way to bonds and are another variant on fixed-income securities.
An alternative to an annuity, income drawdown (also known as an unsecured pension) allows you to take income from your pension fund while the fund remains invested and so continues to benefit from any fund growth. The drawdown of income has to be calculated carefully as taking too much income could exhaust the pension fund so experts say the annual drawdown must not exceed what the assets would normally yield in an average year. The invested pension fund could also be hit by market turbulence and the value of the assets could fall.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.