Stakeholder pensions shake up AVC schemes

A survey published earlier this month has found that the introduction of stakeholder pensions has brought about major changes in additional voluntary contribution (AVC) schemes. These are the schemes that give occupational pension scheme members the option of topping up their pension entitlement.

The survey by pensions consultants Bacon & Woodrow found that charges have fallen dramatically, with charges applied on lower rates of contribution on average falling from 1.5% to 0.8%, lower than the stakeholder maximum of 1% a year. Many providers have also dropped flat-rate or fixed charges.

The survey also found that the closure of Equitable Life, a major AVC provider (see Bargaining Report 212, January 2001) led to a widespread review of AVC provision with three times as many schemes reviewing their provider compared to last year.

Bacon & Woodrow argue that AVCs offer good value for money with average returns over 10 years at 8% ahead of inflation. However,they also point out that over the last year there was a significant gap between the best and worst performers.