Pension plan offers reduction in charges
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Your support makes all the difference.EMPLOYEES putting money into occupational pension schemes run by life insurance companies are losing substantial amounts in charges, according to the managers of a new scheme that aims to cut pension costs.
Money Purchase Plus is being launched by Murray Johnstone, the Scottish investment management group, and Hadrian Solway, the specialist pensions administrator.
The pension plan is a 'money-purchase' one. Employees' pensions will be determined by the performance of the underlying investments rather than being calculated as a proportion of salary on retirement.
An increasing number of companies are switching to money-purchase schemes marketed by insurance companies. Murray Johnstone argues that insurance companies charge over the odds for running them. Employees need to be more aware of the way charges eat into returns, according to John Thornton, a director of Murray Johnstone Asset Management. Money Purchase Plus does not pay commission to advisers who sell it. This helps to keep the charges low.
These are levied as flat fees on a sliding scale, depending on the number of employees contributing to the fund. This contrasts with charges levied as a percentage of funds under management.
According to Hadrian Solway, typical charges by a life insurance company on a money-purchase scheme with 100 members contributing an average of pounds 1,000 a year would be pounds 10,400 a year, excluding an annual investment management charge of 0.875 per cent. Money Purchase Plus would charge pounds 6,475, plus an investment management charge of 0.5 per cent.
This leaves an extra pounds 3,925 available to be invested on the employee's behalf, according to Hadrian Solway.
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