Nutmeg launches personal pension
Nutmeg takes tailored investing style into pensions.
Investment group Nutmeg has extended its unique approach to investing from ISAs into its first personal pension.
How will your money be managed?
Since its launch in 2011 Nutmeg has positioned itself as an investment manager with a difference. Investors complete a risk profile, which Nutmeg then uses (alongside the investor's individual goals) to invest their money into one of its portfolios.
It is applying this discretionary investment approach to its new pension offering.
Depending on your risk profile, your pension contributions will be invested into one of 10 portfolios. This is fairly unusual; normally if you want to consolidate your entire pension fund with one provider you need to use an investment platform where you have to choose your own individual investments.
The downside to this is your investment choices are limited. Other pension providers give you access to a huge array of funds from a wide selection of investment houses. “An investor is effectively buying Nutmeg’s discretionary services within a pension wrapper, rather than buying a flexible pension product,” says Patrick Connolly, a certified financial planner for Chase de Vere.
What will it cost?
Nutmeg’s new pension offering will be available for a minimum initial investment of £5,000, with a single annual management fee of between 0.3% and 1% depending on how much you invest. Portfolios will be tailored to your appetite for risk and are invested primarily in exchange-traded funds.
Nutmeg has pledged that its pension plans will be a lot more transparent than its competitors, with investors able to look up their pension online and see how it is performing, what it is worth and predictions for what they will get when they retire. With many other providers you only get this once or twice a year when you receive a pension statement.
The fee structure is straightforward, and with many investment platforms leveling total charges nearer to 2% a year, Nutmeg appears to offer a great saving.
However, a closer look reveals Nutmeg’s pension isn’t as cheap as it first appears. Within the small print it states that there is a minimum fee of £9 a month. “This means the product won’t be so cheap for investments below £10,800,” says Connolly.
On the plus side Nutmeg guarantees that the Government top-up to your pension contributions will be instantly added to your account each month. This could make a big difference to your returns when compared to other providers, many of whom don’t add that extra cash until they’ve received the refund from HMRC, which can take up to eight weeks.
A model for others to follow
The idea of a transparent fee structure, straightforward investment choices, and being able to see your pension whenever you like online is certainly appealing. But you will pay a premium for this “slick” pension, as Nutmeg describes it. And given what a dent a small increase in fees can make to a pension, it is worth careful consideration.
Hopefully though Nutmeg will shake up the market and lead to a few other pension providers moving with the times. It's worth noting that Nutmeg is explicitly targeting a part of the market that few other providers seem to be interested in – the young.
“We are particularly keen on seeing how we can engage younger savers in pensions – they will suffer the most from the ever-widening pension deficit,” says Nick Hungerford, CEO and co-founder of Nutmeg. “It is unlikely people will ever receive an adequate State Pension and it is critical they engage with pension provision as early as possible.”
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