Hargreaves set to launch basic, ready-made pension with 0.75% annual fee
Hargreaves plans to launch a basic, off-the-shelf pension with a 0.75% annual fee
- The FCA has ordered all Sipp providers such as Hargreaves to offer a ‘default’ option.
- Hargreaves is the first to reveal details ahead of the December 1 deadline
Financial giant Hargreaves Lansdown is launching a no-frills basic pension for people who want an easy way to invest for retirement but aren’t sure where to start, This is Money can reveal.
His ready retirement plan involves saving in a “growth phase” fund, then transferring money to a “de-risk phase” fund during the eight-year period before retirement, for a total annual fee of 0.75 percent.
Regulators have ordered all providers of Sipps – self-invested personal pensions – such as Hargreaves to offer customers a “default” option by early December.
‘Default’ Sipps may be suitable for the self-employed and others who need to save outside a workplace pension and who want a simple option to get started
Hargreaves is the first to reveal details of its default deal, which is available from November 9, but other firms will follow suit with similar announcements in the coming weeks.
Most employed people are automatically enrolled in workplace pension schemes, where their own money is supplemented by free employer contributions.
Sipps therefore tend to be suitable for the self-employed, those earning less than the £10,000 income threshold for automatic enrolment, or those who for some other reason cannot join an occupational pension.
The Financial Conduct Authority decided that to improve what is available to these people, firms should offer them a standardized pension plan including a ready-made investment fund alongside their other Sipp options.
Sipp providers have also been told to issue a “cash alert” to those with significant, sustainable levels of cash in their pensions to signal that their savings are at risk of being eroded by inflation.
Some Sipp providers already offer what is considered basic relatively cheap. The Vanguard Sipp has an annual administration fee of 0.15 per cent capped at £375. On top of this there are funding charges starting at 0.06 per cent for the FTSE All-Share tracker.
The Hargreaves Ready Pension Plan is designed to grow invested money faster when people are younger and de-risk their investments as they approach retirement.
The growth phase involves putting money into the newly created HL Multi-Index Moderately Adventurous fund, which has a mix of passive investments – see above.
The de-risking or ‘lifestyle’ phase will see money gradually move into the new HL Multi-Index Cautious fund, starting eight years before a pre-selected retirement age, which will be 65 if no active choice is made.
However, Hargreaves says you can opt out of risk reduction by moving your money elsewhere, switching to a different fund or a different non-lifestyle version of the same fund. See the box below about whether or not risk reduction is right for you.
The ready pension plan costs an annual fund management fee of 0.30 per cent per annum plus a platform fee of 0.45 per cent.
Ruchir Rodriquez, chief customer and commercial director at Hargreaves, says: “The first step on the retirement savings ladder can be the hardest, especially for the self-employed who don’t benefit from auto-enrolment, so they need to make an active saving decision for the future.
“If anyone is worried that they don’t have enough knowledge or experience to get started, we’ve made the user journey easy and the low cost of the core fund provides an easy solution.
“Then, as they develop their experience and confidence, they can expand their investment horizons.”
Should you ‘risk’ your pension on the eve of retirement?
De-risking or “living” your pension involves moving money from riskier stock markets to supposedly safer government and corporate bonds.
The idea is to protect savers against sudden, sharp losses when they are about to start using their pensions, by buying an annuity that generates a guaranteed income, or more commonly these days through an invest-and-draw scheme.
But the bond crash last year and the sharp declines in bond prices in recent weeks have highlighted the dangers of investing in bonds if you’re a “safety first” investor.
Meanwhile, people who want to keep their pension fund invested for perhaps decades to come after retirement might consider whether they’re better off sticking with stocks that are riskier but have more potential for long-term growth.
Another thing to keep in mind is that rising interest rates have made annuities, which offer guaranteed income until you die, a more attractive option again after years when deals were stagnant.