Build your pension by beating a retreat from the charges

Build your pension by beating a retreat from the charges

The Lifetime Account will charge a flat £35 a year, which compares well with standard personal pension fees, typically an initial 3 per cent of premiums, then 1.5 per cent of your fund each year.

Moreover, its charges are not deducted from premiums, so they do not affect your fund's long-term performance. Someone contributing £200 a month would pay £1,225 in charges and have a fund worth £440,599 after 35 years, assuming annual growth of 7 per cent.

Someone putting the same amount into a standard pension plan would have the charges taken out of their fund - cutting its value over 35 years by £139,194, assuming the same growth rate, leaving them£301,405.

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Even a stakeholder pension, the government's cheap alternative, is more expensive over the long term. The same person investing £200 a month would end up with a fund worth £348,376, losing £92,223 in charges.

The Lifetime Account is sold by Personal Savings & Investments (PS&I), a new firm founded by Julian Penniston-Hill. Last year, he set up Intelligent Money, a service which refunds all ongoing commission payable on investments and insurance products to members for an annual flat fee of £35.

'Ten million people are investing £3.75 billion a year of new money in personal pensions and the industry takes £5bn a year on all funds in charges,' Penniston-Hill says. 'People haven't the faintest idea that they are ripped off to the extent that this is a bigger pension scandal than mis-selling.'

The Lifetime Account is based on a Self-Invested Personal Pension (Sipp) structure, giving investors great flexibility in terms of increasing, decreasing or stopping contributions without penalty.

The minimum investment is £50 a month, or a £500 lump sum. However, unlike most Sipps, which allow freedom to invest in a wide range of assets, money invested in the Lifetime Account will be placed in a 10-year fixed-term building society account, with returns from the following sources: one third of it linked to fixed-interest cash, earning an annual equivalent rate of 6 per cent for 10 years; a third earning interest equal to any rise in the Halifax House Price Index; and the rest having interest equalling any rise in the FTSE 100 index.

Penniston-Hill says this combination has provided the most consistent returns over any 10-year period, stretching back to 1984.

At the end of the 10 years, investors can roll their money into another decade-long Lifetime Account or reinvest it through the Sipp in other suitable assets, though the charges will change if they do that.