AJ Bell’s move to launch four new Ready-made pension portfolios earlier this year is a challenge to the digital wealth management sector.
The investment platform’s move to provide three risk-rated growth funds with annual management charges of just 0.45% puts it in a competitive position against the likes of J.P. Morgan-owned Nutmeg, Moneyfarm, and Aviva-owned Wealthify. These digital wealth managers specialise in offering their own pension solutions at similar or somewhat higher pricing points.
The new solution also links to a pension finding tool launched by AJ Bell last year for no extra cost. This allows customers to track down their pensions and automatically combine them into a simple, low-cost pension account.
“Our new Ready-made pension service takes away the hassle, automatically finding all your pensions and combining them into an easy, low-cost account,” AJ Bell managing director managing director Charlie Musson said at the time of the launch in May.
Competitive fees
AJ Bell’s new funds each invest solely in a range of low-cost index trackers, allowing the firm to keep charges competitive.
Given the management fee for AJ Bell’s SIPP is around 0.25%, investors in the Ready-made pension portfolios would pay 0.7% annually, excluding a £1.50 dealing charge to sell the fund.
In addition to the cautious, balanced and adventurous growth funds, there is also a responsible investing option with a fee of 0.60% per year. Total fees amount to 0.85% for this solution when including the SIPP platform fee.
The Ready-made pension fees compare favourably with those of similar solutions provided by Nutmeg, Moneyfarm and Wealthify.
Fees at Nutmeg and Moneyfarm start at 1% and 0.99% for their pension solutions, while Wealthify’s charges start at 0.75%. This includes each firm’s own management fees as well as underlying charges for the funds invested in. The platform charges are tiered, meaning they are reduced depending on how much assets are invested.
Given the power of compounding, what appear to be relatively small differences in annual fees can have a big affect on the value of investments and eventual outcomes.
AJ Bell noted at the time of the Ready-made pension launch that someone combining three pension pots each worth £25,000 could in five years be more than £1,300 better off by switching from pensions charging between 1%-0.5% to the new solution.
In 10 years this rises to more than £3,100, while in 20 years the difference rises to more than £8,600.
Robin has more than six years of experience as a financial journalist, most of which were spent at Citywire, and covers the latest developments in the investing, trading and currency transfer space. Outside of work, he enjoys reading literature and philosophy and playing the piano.
You can contact Robin at robin@goodmoneyguide.com
