Virgin Money Pensions

...with the product I chose, Virgin Money's Stakeholder Pension.


- What is a Pension?
In its simplest form, a pension is the income you receive when you retire, paid to you in regular instalments (called an annuity). To build up a pot of money to pay this annuity, someone has to do some saving; what differentiates one type of pension scheme from another is how the saving is done, by whom, and how the income is generated ...
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- My Virgin Money Experience
At the time I was starting to first consider pensions the stakeholder pension plan was therefore ideal product for me, as it meant I could start building up an (albeit small) pension pot at low cost to myself. You may ask what the rush was given my relatively young age, and the answer is that pensions have a cumulative effect, so the earlier money is paid into it, the longer it has to build up in your ... more

I think it is fair to say that pensions are high on the agenda at the moment. There has been a great deal of discussion about pensions in their various forms in the media over recent years, and however dull a topic they may be, they are also an inconvenient financial truth that has to be addressed. I took the plunge and began my own personal pension about six years ago. At this time, I had recently graduated from university and was taking a gap year to work and save up to pay for my MA course. My career had yet to properly begin and I had very little money, but I knew that one day I would want to be able to have the kind of relaxed retirement my parents have recently started to enjoy. This spurred me into investigating what my options were, and if it was (a) possible and (b) affordable for me to start putting a little money away each month for my future. This review is based on my own experience with the product I chose, Virgin Money's Stakeholder Pension.

- What is a Pension?
In its simplest form, a pension is the income you receive when you retire, paid to you in regular instalments (called an annuity). To build up a pot of money to pay this annuity, someone has to do some saving; what differentiates one type of pension scheme from another is how the saving is done, by whom, and how the income is generated from the saving. There are three basic sorts - the state pension (what the government pays you on reaching state retirement age, which is theoretically saved from your National Insurance contributions), the occupational pension (one you get through some employers, and which is built up through a mixture of employee and employer contributions), and a personal pension (one you have privately and pay into yourself). A stakeholder pension is a type of personal pension.

- Why a Stakeholder Pension?
The stakeholder pension was introduced in April 2001 as one potential solution to the current pensions crisis. In a nutshell, there is not enough money stashed away in pension funds to ensure a comfortable retirement for today's working age population, and the stakeholder pension is intended to encourage us to save more for our retirement, so we have a second income to supplement the state pension. It does this by offering a relatively low-charge pension plan that has to match certain standards (laid down and regulated by the Financial Services Authority), and allowing people to save much more flexibly for retirement. The basic standards of a stakeholder pension are:
- it can only charge fees of up to 1.5% per year for the first 10 years and 1% thereafter
- it has a minimum paying-in level of just £20
- it is open to anyone in the UK aged 70 or under
- it can be opened for children under 16 by an adult
- it is open to you regardless of whether you are employed or not
- you can increase, decrease or stop payments without being charged
- other people (such as parents and employers) can pay into your scheme

Anyone who pays into a stakeholder pension, whether they are taxpayers or not, are eligible for income tax relief of 22% on up to 100% of the value of your earnings (this will drop to 20% when the changes to income tax levels that were announced in the last budget come into effect, see http://www.fool.co.uk /news/retirement-pensions/2007/03/22/another-blow for a clear explanation on this). What this means is that for every £100 you currently invest into a stakeholder pension costs you just £78. Or to put it another way, for every £1,000 you pay into your fund, the nice people at the Inland Revenue will top it up by £290. You do not even have to do anything to get this extra investment - your pension provider will automatically claim it for you. If you are a higher rate taxpayer, then you get tax relief up to the 40% level as well.

However, there are some disadvantages to stakeholder pensions, and they are not right for everyone. The risk factors associated with them are:
- investment is linked to the stock market, so can go up or down
- once you have invested money, you cannot get it back until after you are 50
- the amount of income you will eventually get cannot be guaranteed (it is dependent on how long you have the pension for, how much you pay in, and the growth levels of the fund your money is invested in)
- the amount of tax relief and the rules governing these pensions may change in the future (as I mentioned above with changes to income tax levels)

The main target for the stakeholder pension was people earning less than £20,000 who don't have access to an occupational scheme; this, combined with the low charges, meant that it was both possible and affordable for me to save small amounts each month, and increase the amounts over time as I began to earn more without being charged fees for doing so.

- My Virgin Money Experience
At the time I was starting to first consider pensions the stakeholder pension plan was therefore ideal product for me, as it meant I could start building up an (albeit small) pension pot at low cost to myself. You may ask what the rush was given my relatively young age, and the answer is that pensions have a cumulative effect, so the earlier money is paid into it, the longer it has to build up in your scheme before you reach retirement. I decided it was worth stretching my budget to open up a scheme for the long-term rewards I would expect to get. Having therefore decided upon a product, I began researching providers of stakeholder pensions.

So why, out of all the financial institutions offering stakeholder pensions did I chose Virgin Money? As a company it has only been around since 1995, so did not have the established history of some of the other banks and investment companies offering stakeholder pensions. It did, however, have many things going for it: they had come out very well in several independent financial surveys I looked at during my research (it was the winner of the 2001 "Investor's Week Online Finance Awards", and the "Your Money Best Direct and Internet Pension Provider" for example), offered online access, had a minimum payment level of £1 (better than they were legally obliged to offer), and all their information is written in plain English so I could understand exactly what I was getting. Indeed, Virgin won an award from the Plain Language Commission in 1997 for the clarity of their original pension plan. They also give you a "cooling off" period for two weeks after you open the pension in case you change your mind - your money will not be invested until this time is up, and until then you can have any initial investment back. I found this approach to be reassuring. The fact that the fees for managing the pension fund were less that the 1% industry standard at the time I opened my plan was also a great incentive (although the rate does stand at 1% at the time of writing).

Opening my stakeholder pension was very straightforward - all the paperwork was clear, easy to complete and simple to understand - and just required my personal details, a Direct Debit form to arrange for regular payments to be taken from my bank account, and the naming of my dependent(s) who would get my money should anything happen to me prior to retirement. You also have the option of providing a cheque for a one-off payment to get your fund going. Once the pension is up and running, Virgin Money send you paper statements twice a year (in May and November), and written confirmation of any additional one-off payments you make into the fund. Between statements, you can check the value of your pension at any time using either their online service or by ringing an automated phone line that will provide you with the most recent valuation. The statements are also useful in that each one contains a assessment of what you pension could be worth in the values of today's money if you continue saving at the same rate until retirement. You do have to bear in mind that the forecast growth rates are merely estimates, but I find this helps me to work out the value of my payments; it encourages me to keep saving, and I can use these figures as a guide to whether I want/need to save more each month.

This pension plan generates your retirement income in the same way that most stakeholder pensions do: by index tracking. Most financial experts will agree that the stock market has the most potential to grow your money over the long term, and as pensions are the longest term investments any of us are likely to have, then a link between your pension and the stock markets is exceedingly likely. There are all kinds of different funds that use the stock market to try and generate money, but they all fall into two different types, managed funds and tracker funds. Managed funds are more expensive (because someone has to be paid to spend a lot of time managing them), and it has been shown that the humble tracker fund (where the market is "tracked" by computer) consistently outperforms managed funds 75% of the time. So it is a good thing that this plan puts your savings into an index tracker fund. But I suppose the key question here is how well has this fund performed? Looking at my most recent statements, in the six months up to May 2007 (my last statement at the time of writing), the fund had grown by a pretty good 7.92%, up from the 3.18% it had managed in the previous six-month period. This may not seem very exciting, but in the statement before that (May 2006), the growth was an impressive 16.66%, and the one prior to that was 12.21%. As the pension forecasts are made assuming an average growth rate of 7%, then I think it is fair to say that I am pleased with the way my fund has grown over recent years and am looking forward to receiving my next statement later on this month.

I have always found Virgin Money to be excellent to deal with. When I have sent instructions by writing, the response has been prompt, and phoning their call centres has not been for me the arduous experience that I have experienced with other companies. My calls are answered promptly, by staff that are well trained and helpful, and no errors have been made in the handling of my affairs (which is a lot more than I can say for other financial institutions I have had the misfortune to deal with). Virgin Money clearly put a big emphasis on good customer service. My only complaint would be that the automated phone system has changed recently, from one that requires you to press the buttons on your phone to access an option, to one that has voice recognition software. The old system was reliable, but the new one has had some glitches; on a couple of occasions it has failed to understand the details I have spoken, and while this means that I get the information I was phoning for from an operator instead, I have found it a bit frustrating when this has happened.

- My Final Thoughts
I have never had cause to regret taking out Virgin Money's Stakeholder Pension, and after nearly six years find myself happy with performance, service and communication. Admittedly I haven't used their online service as much as I expected I would (in fact it has been a couple of years since I last used it, so any comments I have on this aspect of the product would probably be redundant now anyway). The reason for this was simply the complex logging system involving a barrage of passwords, codes and questions; while this means the system is very secure, it also meant that I kept forgetting all my various settings! I find the phone service to be much better and easier to operate, and use that to monitor and control my plan rather than the online banking.

Ultimately, if a stakeholder pension is the right product for you, then I wouldn't hesitate to recommend the Virgin Money product - if it isn't, then I would still happily give a thumbs up to Virgin Money for the great service I have received from them. If another of their products were right for me, I would happily use this company again.

- Further information
Government pension guides can be downloaded from:
www.pensionguide.gov.uk

Virgin Money's pension site can be found at:
http://uk.virginmoney.com/pension/ 

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