How costs of scheme vary wildly

THE Mail on Sunday has scrutinised the four investment pathway offerings of seven key providers – and some of our findings are troubling. Costs vary wildly.

The options offered by fund platform AJ Bell are among the most expensive. For example, savers would be charged £990 in the first year to have a £100,000 pension pot invested in its pathway 3 fund – AJ Bell Income.

However, if they put £100,000 in Aviva’s equivalent fund – Investment Pathway 3 S14 – it would cost £525. This means AJ Bell’s fund would have to significantly outperform Aviva’s pathway offering to make up for its higher fees.

AJ Bell says the costs of its Pathway 3 fund are higher ‘because the underlying investments we need to invest in to generate the target income are more expensive’.

AJ Bell has been critical of the investment pathway initiative. Last October, chief executive Andy Bell wrote to the regulator warning that it ‘risks causing real and lasting consumer harm’.

He also cautioned that the pathways are a ‘mandate for pension providers to line their pockets by peddling their own in-house funds with little or no control on fund charges’.

Interestingly, while some platforms have chosen not to offer inhouse funds, AJ Bell has. Rival Hargreaves Lansdown has not picked any of its in-house funds for its four pathway options. It says: ‘ We’ve chosen the funds which we believe best suit client needs for each pathway from an investment and cost perspective.’

Bella Caridade-Ferreira, chief executive of fund research house Fundscape, believes Hargreaves’ decision to offer the best funds from the whole of the market is a ‘nice turnout’. Of AJ Bell’s fees, she says: ‘Maybe the firm could bring them down a bit.’

AJ Bell says: ‘We have a structure where any economies of scale generated as a fund grows are automatically passed back to i nvestors. So we’d expect the ongoing annual charges for our

four pathway options to reduce as the funds grow.’

The regulator did not put a cap on the annual fees (platform and fund charges combined) that pension firms could charge, although it challenged them to keep them under 0.75 per cent. All bar one of the 32 pathway options examined by The Mail on Sunday pass this challenge – the exception being the pathway 3 option from AJ Bell where total annual fees amount to 0.99 per cent.

Phoenix Group’s costs hover just below 0.75 per cent for all four pathways. It says: ‘Our charge is “all in” and therefore ensures customers are clear on what they are paying with no hidden extras.’