We've found five individual pensions that can be used by one-week-old babies and (young) granddaddies alike.
I had an excellent reason to look up decent stakeholder pensions over the weekend, as I just became a godfather to a girl born last week. 'Isn't she a weeee bit young for a pension?' you might think. But there are huge advantages to starting this early.
To start her off, I'm contributing £20 per month. This may not seem like much, but even if I just contributed this amount for just one year and then stopped, assuming a 9% average annual return, by the time she's 55 her pension could have grown to more than £30,000! Not bad for a £240 investment.
I want a good old index tracker for baby Seren. Index trackers track the stock market, which means that fund managers don't need to use their intellects to choose shares. They've also been found to outperform fund managers (and their intellects) more than 80% of the time over the long term. Besides, you never know when a good fund manager will leave and be replaced by an imbecile!
Problem is, it's hard to compare pensions. Not only that but providers make it hard to find the schemes I'm interested in, because they don't get much money for stakeholder pensions. But you couldn't find more deserving parents, so I was highly motivated.
I spent many hours trawling through websites and destroying my vision by reading the tiny-print pension tables in Money Management magazine, in order to compare all the criteria that I consider important. As you'll see from the table below, rated purely on costs Scottish Widows' index tracker has the edge.
However, index trackers have a 'tracking variance', which means they don't follow the market precisely. That's why they all perform similarly well, but not identically. Legal & General's index tracker performed the best of all 25 index-tracking pensions. It also came 33rd over five years against the 249 pensions I compared:
Cheapest Stakeholder Pensions
| Company |
Charges/yr |
Min. |
Min. |
FTSE All Share index |
Performance** |
|---|---|---|---|---|---|
|
Scottish Widows |
0.8% if set up online, |
£20 |
0 |
Yes. |
£1,231 / 57 / 7 |
|
Friends Provident |
0.8% |
£20 |
0 |
Yes. |
£1,144 / 97 / 15 |
|
Legal & General |
Tiered: 0.9% on first £25,000; |
£20 |
0 |
Yes. |
£1,286 / 33 / 1 |
|
Standard Life |
1% |
£15.60 |
0 |
Yes. |
£1,227 / 59 / 8 |
|
NorwichUnion |
If you apply online: 1.3% for |
£20 |
0 |
Yes. |
£1,257 / 45 / 3 |
*If your pot reaches £25,000 to £49,999, 0.05% charges are refunded. £50k+ = 0.1% refunded each year.
**How much £1,000 invested five years ago would be worth now/How well it compares to the other 249 funds I looked at/How well it compares to the other 25 index-tracking funds I looked at.
Despite Legal & General's performance, I'd still go for the Scottish Widows tracker. This is because it came a decent seventh out of 25, plus it's cheaper, and over time we won't know which fund will perform the best. When it comes to index trackers, the most important thing to compare is the charges.
Are these just suitable for babies? No. I recommended the Scottish Widows one to a 26-year-old friend of mine too. I'd say these are suitable for everyone with more than ten years left to go on their pension, and possibly even less.