Comparing Pension Charges / TERs etc.

Having tried and failed to find an IFA that will offer reasonable commission rates, I am now considering H&L for a pension.
Note: I have taken onboard the previous comments about Skandia vs Selestia, just using the figures for comparison.

Whilst, I am familiar with the concept of Total Expense Ratio when looking at funds directly, I am slightly confused when comparing pensions.

e.g.
Aberdeen Emerging Markets fund in a H&L SIPP
TER = 1.69%

If I am comparing this with a Skandia pension with Pension Annual Management Charge = 0.75%
and equivalent Aberdeen Emerging Market Pension fund AMC=1.15%
Does this mean that the Skandia TER on this fund is 0.75+1.15 = 1.9%
or is the TER only relevant to the underlying fund.

I have been quoted the following other pension fund AMCs
Schroder Euro Alpha 1.2%
Artemis European 1.25%
Invesco Perp High Income 1.2%
Schroder UK Mid 250 1.15%

The effect on investment growth is stated as bringing the investment growth from 7.00% a year down to 5.3 - 5.4% a year (across this range of funds).

If I look at the equivalent fund information for H&L, say for Artemis European Growth I read the following:
Yield reduction at 7% 4.77%

Does this yield reduction mean that buying this fund from H&L is more expensive than Skandia?
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Comments

  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    The effect on investment growth is stated as bringing the investment growth from 7.00% a year down to 5.3 - 5.4% a year (across this range of funds).

    If I look at the equivalent fund information for Skandia, say for Artemis European Growth I read the following:
    Yield reduction at 7% 4.77%


    Reduction in yield is a way of explaining the charges.

    In the first example, if the fund grows at 7%, the charges will mean that growth is reduced to 5.3%. That is, the charges are 1.7%, the difference between the two figures.

    In the second example, growth would be reduced to 4.8%, so the charges are much higher at 2.2%.As you would expect, the discount broker (HL) is significantly cheaper.

    The TER relates to the underlying fund. Some companies charge an AMC on top of this. Avoid such companies - there is no need to pay an additional annual fee.
    Trying to keep it simple...;)
  • EdInvestor wrote:
    Reduction in yield is a way of explaining the charges.

    In the first example, if the fund grows at 7%, the charges will mean that growth is reduced to 5.3%. That is, the charges are 1.7%, the difference between the two figures.

    In the second example, growth would be reduced to 4.8%, so the charges are much higher at 2.2%.As you would expect, the discount broker (HL) is significantly cheaper.
    .
    Oops. I have edited my previous post, as I made a mistake.
    Actually, the growth reduced to 4.8% was H&L. Skandia was the 5.3% figure.

    Another example, on the H&L web page it states the TER for the Invesco Perp High Income (Acc) Fund is 1.69%.
    However, the reduction in yield from 7% is stated as 4.68%.
    Do you know why these figures don't tally?
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    The Reduction in Yield (RIY) measurement is defined as the percentage point reduction in the gross return on a pension fund as a result of explicit charges and fees. Dealing costs and other implicit charges are not included.

    The extra on top of the fund TER will presumably relate to the costs of providing the SIPP wrapper. Suggest you ask the providers for a breakdown.

    There are different "versions" of funds and this may create differences in charges.For instance the version of IP High income available in a pension fund may not be exaxctly the same as the one available in an ISA, or direct.
    Trying to keep it simple...;)
  • dunstonh
    dunstonh Posts: 116,040
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    Depending on the Skandia pension you have, you may be getting a 1% bonus every 5 years added to the plan. Plus some funds can obtain an AMC of less than 1%. If your spread includes those as well as higher charged funds, it could make a difference against HL.

    Skandia do have 1st nation status on a number of funds. Its getting less over time but it does mean that they get best charging some of the time.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • The problem I am having is reconciling the reduction in yield figures with the AMCs /TER quoted separately.
    On TER, it would seem that H&L is cheaper.
    However, when I look at reduction in yield it seems that Skandia is cheaper.
    I thought the point of these figures was to allow a fair comparison, similar to the reason why AER is used as a comparison on savings accounts.

    The Skandia fund AMCs quoted range from 1.15 - 1.2%.
  • dunstonh
    dunstonh Posts: 116,040
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    I dont know what version pension you have but one had a 0.25% charge on values above a certain amount with fund AMCs on top. The lowest AMC was 0.15% (although 0% was available on one up until beginning of last year).

    The bonus of 1% every 5 years is included in the TER for skandia if you get it. Single premium contributions are cheaper with skandia than regular.

    TER is to look at the cost of funds. RIY is to look at the cost of the product including AMC.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Thanks. I am looking at the Skandia Single Price Personal Pension scheme.

    The Pension charges are stated as
    Less than £50k 0.75%
    >= £50k 0.25%

    Would I be correct in understanding that the RIY figure would include this charge?

    As I am looking at the 0.75% pension charge, taking the an average fund charge of 1.2% + 0.75= 1.95%
    However, the relative reduction in yield is around (7-5.3)=1.7%.
    This is what is confusing me.

    If the RIY figures are for the 0.25% pension charging, then even taking another 0.5% off this figure would give RIY 4.8%, which is the same as H&L.

    If I am understanding this correctly, this means that H&L are pulling the wool on first look when it states that their SIPP has no annual management charge.
  • dunstonh
    dunstonh Posts: 116,040
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    Thanks. I am looking at the Skandia Single Price Personal Pension scheme.

    That would be the PP6 contract from memory.
    Would I be correct in understanding that the RIY figure would include this charge?

    It does include that charge. RIY includes all charges on the wrapper that you will certainly face. Optional charges are excluded as they may not occur (that only applies to HL and not Skandia in this case as Skandia have no charges on different services whereas HL do).

    I will take a more detailed look later but off the top of my head, it could be that the HL SIPP you are looking at includes funds which have an initial charge? That would price them unfavourably against the Skandia version.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Hi

    The RIY expresses the average annual effect of charges over the life of the contract, and are usually rounded up to the nearest 0.1%.

    The RIY with this type of plan will vary according to each individual case, depending on contribution levels and investment term (the larger the contribution & longer the term, the lower the RIY will typically be).

    Let's say you are 30, and have an illustration based on retirement at age 60.

    To start with, you would be paying the 0.75% annual Skandia management charge, plus the annual fund charge of 1.2% in your example. Therefore, in the early years, your charges will be approx 1.95% pa.

    However, after a few years, depending on the size of your contributions and how fast your fund grows, your fund will get past the £50,000 mark, at which point you get lower charges. (This is effectively a 0.5% annual discount on their annual plan charge as you and Skandia benefit from economies of scale on a larger fund)

    Once the £50,000 figure is passed, your Skandia charge drops to 0.25%, plus the annual fund charge of 1.2% you quoted. This would therefore give a lower ongoing charge of 1.45% pa.

    The 1.7% RIY figure quoted takes account of the fact you will be paying 1.95% initially and 1.45% latterly, assuming a 'middling' rate of growth of 7% (before charges) prescribed by the regulator.

    Hope this helps!
  • Many thanks for everyone's information.

    The 1.7% RIY figure quoted takes account of the fact you will be paying 1.95% initially and 1.45% latterly, assuming a 'middling' rate of growth of 7% (before charges) prescribed by the regulator.
    As mentioned before, this makes H&L pretty expensive.

    Whilst off-topic for the Pensions forum it leads on to make similar comments about the H&L ISA.

    As the RIYs quoted for H&L apply equally to their fund supermarket, then it would seem that in fact H&L may also be not the cheapest ISA fundsupermarket using RIY figures.

    e.g.
    Artemis European Growth
    5.4% RIY for Artemis European Growth, assuming initial charge discounted for Fidelity FundNetwork (using the online KFD generator)

    4.8% RIY for the fund at H&L

    I am waiting for a counter-example, but this seems contrary to the general opinion on discount brokers propagated on this forum.
    Even with the Fidelity 0.25% switch charge, then I could switch perhaps once a year and still be better off.
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