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Comparing Pension Charges / TERs etc.
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# 1
moneyandmountains
Old 17-01-2007, 9:09 PM
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Default 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?

Last edited by moneyandmountains; 18-01-2007 at 8:15 AM.
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# 2
EdInvestor
Old 18-01-2007, 7:46 AM
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Quote:
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.
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# 3
moneyandmountains
Old 18-01-2007, 8:19 AM
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Default

Quote:
Originally Posted by EdInvestor
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?
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# 4
EdInvestor
Old 18-01-2007, 10:06 AM
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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.
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# 5
dunstonh
Old 18-01-2007, 3:50 PM
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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 a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
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# 6
moneyandmountains
Old 18-01-2007, 6:21 PM
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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%.
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# 7
dunstonh
Old 18-01-2007, 7:47 PM
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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 a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
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# 8
moneyandmountains
Old 18-01-2007, 8:15 PM
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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.
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# 9
dunstonh
Old 18-01-2007, 8:25 PM
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Quote:
Thanks. I am looking at the Skandia Single Price Personal Pension scheme.
That would be the PP6 contract from memory.

Quote:
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 a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
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# 10
CardiffScot
Old 18-01-2007, 8:56 PM
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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!
You should be aware that I'm an Independent Financial Adviser (IFA).

I enjoy adding my tuppenceworth to discussions, but would caveat that this shouldn't be construed as financial advice as it can't possibly fully take account your situation. Should you want to seek regulated advice, you should consult an IFA.
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# 11
moneyandmountains
Old 18-01-2007, 10:07 PM
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Many thanks for everyone's information.
Quote:
Originally Posted by CardiffScot

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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# 12
EdInvestor
Old 19-01-2007, 5:00 AM
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Rather than continue to speculate, I suggest you check with HL. RIYs are not normally used with SIPPs because the charge for the wrapper is separate from the charge for the investments within it.
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# 13
dunstonh
Old 19-01-2007, 9:10 AM
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RIY will be used with SIPPs from April when it becomes regulated. HL may be offering the information now in readiness of that.
I am a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
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# 14
moneyandmountains
Old 19-01-2007, 4:32 PM
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Default So the H&L web page is incorrect

I have received a response from H&L:

"The reduction in yield figures that you see in the key features are provided by the groups and as well as the annual charges, they take account of the initial charge that is applicable to purchase of the fund. However the figures do not take into account any saving on the initial charge provided by a financial intermediary such as ourselves.

What you are seeing in the reduction in yield figures for the Artemis European Growth therefore is the effect of the annual Total Expense Ratio of 1.54% and a full Initial Charge of 5.25% being applied to the purchase. No account is taken of the 5% saving on this charge that we offer. We hope soon to be producing reduction in yield figures that do take account of our savings on the initial charge, however these are not presently available."

So H&L is actually pretty good.
However, I thought the point of RIY and TER figures was to make easier to compare charges for the investor. Apparently not.

An additional unknown is the following statement:
"One difference between the SIPP account and the other Vantage accounts is that there is no annual loyalty bonus payable on funds held in the SIPP. This is the annual renewal commission that we share with you in the other Vantage accounts. We have been informed by HMRC that such payments are not permissible from a SIPP account."

Whether this makes the SIPP 0.25% a year more expensive or not than the equivalent ISA is anyone's guess.

Last edited by moneyandmountains; 19-01-2007 at 5:06 PM.
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# 15
dunstonh
Old 19-01-2007, 6:40 PM
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Quote:
Whether this makes the SIPP 0.25% a year more expensive or not than the equivalent ISA is anyone's guess.
TERS wont consider the rebate. TER data would be supplied by the fund house and assumed on normal charging. Rebates would not come under TER but should come under RIY.
I am a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
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