Holly's Blog: Everybody be cool, this is an (anti) robbery...
11 July, 2017
Things are not often exciting in the pensions world. But this week it was more Tarantino than Miss Marple...
Things are not often exciting in the pensions world. But this week it was more Tarantino than Miss Marple as US giant Vanguard (https://www.boringmoney.co.uk/isas-pensions/vanguard-investor/) launched their low-cost online pension in the UK. This is dramatic stuff and sets a hungry cat amongst the chubby pensions pigeons.
For people who want to save into a simple pension, and who don’t want to trade, fiddle and buy exotic stuff, and who don’t buy into the idea of backing fund managers who boast of the secret sauce that is a superior ability to pick winners, then this pension is good news.
It's cheap. You will pay 0.15% a year for the administration. And you can get a mixed bag of ‘passive’ investments with a single Vanguard LifeStrategy fund for about 0.26% a year all-in. So that’s 0.41% - or £41 on every £10,000 every year.
The 0.15% is also capped at a maximum of £375 a year across all accounts – including any ISAs you have with them too.
Some competitors will feel like I did in the school disco as I was getting on so well with Gorgeous Keith, he of dizzying C&A jumper-modelling fame, and then Gorgeous Becky swanned in. Time to give up and go and swig warm cider behind the gym instead.
But there are some flaws in the Vanguard offer…
The website and onboarding broke for many customers on Day One. Let’s put that down to teething problems.
This is currently only a viable option for people pre-retirement as they don’t yet have what we call ‘drawdown’ i.e. where people in retirement progressively sell investments and pay themselves an income from the pension.
You can’t hold shares or buy funds from any other brand here. Providers with fixed fees such as Interactive Investor – £240 a year in admin fees for a pension – will be lower cost for those with larger sized accounts who want some element of choice.
And here’s a more interesting one which I think is Vanguard’s biggest challenge. They aren’t doing much to use their financial clout to help drive social or environmental (https://www.boringmoney.co.uk/learn/investing-guides/product-guides/sustainable-esg-investing/) issues.
BlackRock and Vanguard control the largest blocks of shares in nearly every publicly-traded firm in the US. But they don’t typically vote for climate-related shareholder proposals. Studies show that Vanguard will consistently only vote for about 10% of these resolutions. This stuff is complex. Vanguard will say that it prefers to ‘engage’ with Boards on a confidential basis. Critics say that talk is cheap and the idea that they can just say “Trust us, little people. We’re engaging” with no evidence is wearing thin. Focus on this will ramp up quickly this year as more and more people realise that their pension is powerful – and can make more of a difference to the future than using the occasional keep-cup.
I’ve written this blog in the interests of providing a balanced view. But I will conclude by saying that Vanguard’s low-cost pension is a very welcome and positive addition to customers’ choice and it’s a damn compelling service for many. You’re not going to go far wrong with these guys.
Best Buys 2020 drum roll……
Finally. As we know it is not just about finding the cheapest. Many of you tell us that you value other things, including the ability to speak to sensible humans on the phone, a decent app, sites that work reliably well, quick and correct tax reporting... And more. Next week we reveal our 2020 Best Buy ratings. We’ve trawled through over 30 of the better providers and tested charges, functionality, apps, call centres and more… Tune in next week to see who gets the Boring seal of approval this year.
Have a great weekend all.