Stakeholder Pension /Total Expense Ratio

investor7_2

Dear All,

I Have a stakeholder pension with Scottish Widows and i am trying to find out what the Total Expense Ratio ( TER ) of the fund within the stakeholder is.
My understanding is that the TER consists of the Annual Management Charge ( AMC ) on the policy ( mine is 0.78% ) and other fees such as legal, trading, auditors, registration fees etc etc.
I have contacted Scottish Widows about this and they have written back to say that as my policy has a fixed AMC the TER is not applicable. This is clearly rubbish given what i have written above.
I have looked on the internet for details of the TER on Stakeholder pensions but nowhere seems to have these details. Trustnet i think lists my policy but does not give the TER.
Can anyone tell me where i can find the TER of Stakeholder policies on the net ?

Debt_Free_Chick

Try the Annual Report and Accounts

Although SW are right - whatever the TER, the AMC is the only charge you pay.

The AMC may be higher than the expenses in the fund to reflect the additional administration/compliance associated with pension plans.

dunstonh

A number of internal funds from providers have more or less equalised the TER to 1%.

EdInvestor

Of course you also pay a load of other hidden transaction charges in addition to the AMC and the TER.These can easily double the charges you are told about.


See page 14 of the Pension Commission report for a breakdown of these charges which can reduce the size of your fund by 35-30% over its lifetime.

Debt_Free_Chick

EdInvestor wrote: »

Of course you also pay a load of other hidden transaction charges in addition to the AMC and the TER.These can easily double the charges you are told about.

In a Stakeholder Pension? Are you sure?

EdInvestor

Debt_Free_Chick wrote: »

In a Stakeholder Pension? Are you sure?

Yes.The figure is lower with tracker funds, and higher usually with global funds. The type of pension wrapper is irrelevant.The same charges apply to funds held directly and in ISAs. Investing through funds is much more expensive than people think.

dunstonh

Ed is making assumptions. As I said, a number of providers on internal funds have the TER at 1%. External funds and unit trusts are still subject to additional charges. This also goes for life funds as well just in case you were wondering.

EdInvestor

dunstonh wrote: »

Ed is making assumptions.

No I'm not. I'm quoting an official Government report.

As I said, a number of providers on internal funds have the TER at 1%.

Additional hidden transaction costs apply on top of the TER.

External funds and unit trusts are still subject to additional charges. This also goes for life funds as well just in case you were wondering.

Indeed so, in a pension these days you may also be paying further additional charges to access external funds on top of the TER and the hidden transaction charges.

It's soooo much cheaper just to hold your shares directly.

jamesd

investor7, ask for the reduction in yield figure. That includes the dealing costs and stamp duty parts of the picture. It's possible for them to set the AMC and TER to be the same by absorbing the costs themselves as part of their AMC pricing but the reduction in yield will include things like stamp duty and other costs of buying and selling.

EdInvestor wrote: »

No I'm not. I'm quoting an official Government report.

You should read that report more carefully, since it made assumptions and used a study of unit trust costs from the 1990s as the basis for its projection. And the projection? That a modern pension would have total "hidden" costs of 50 basis points, 0.5%.

EdInvestor wrote: »

It's soooo much cheaper just to hold your shares directly.

Then you pay 0.25% stamp duty and say ten Pounds per deal. Assuming pension contributions of 200 a month into ten shares that you hold for five years then sell you end up losing half of your money just to buy the shares - 10 in fees plus stamp duty and bid-offer spread to invest just 20 pounds per share.

So you give up on regular monthly investing (I'm assuming you don't want to give up on diversification) and instead buy once a year. Now you pay ten Pounds dealing costs plus the other costs from the Pensions Commission report to buy 240 Pounds of shares. That's ten Pounds for buying cost, 1.15 stamp duty on the remaining 230 and 1.73 for the effect of bid-offer spread. 12.88 in direct and hidden costs for a 240 purchase so 5.37% in the first year. Hold for the five years and divide evenly and you end up at 1.07%. Then you get to pay another ten Pounds to sell. I'll assume that the investment doubled so it's buying time value is five Pounds and the effective initial cost rises from 12.88 to 17.88 which is 7.45% in year one or 1.49% if evenly paid over five years. It's actually worse since you lost some of the doubling of the investment growth on the money you paid in the buying costs.

You just invented a way to pay 1.5% a year in costs while losing the benefits of monthly purchasing and broad diversification of shareholdings in funds.

No reason not to consider some direct share holdings, paricularly once the pension pot size is more substantial, but they do have their own costs even if you can manage to avoid on average turning over 100% over five years. You'd need to hold for ten years on average just to match the 0.78% TER cost investor7 has been quoted. That's quite a trick if there are mergers and such going on and fees to pay for them or even just holding the shares in a nominee account.

investor7_2

Thanks everyone for this,

One thing i do find curious and that is why i have found it impossible to find the TER of any funds held WITHIN a staheholder wrapper on the net eg trustnet or morningstar or fitzrovia etc etc. I can only think of two reasons for this.

1. Perhaps stakeholder companies are not required to publish the TER of funds held within a stakeholder wrapper. This would be an unfortuneate louphole in the law/regulations because by FSA or some othe body's regulations or by law fund companies HAVE to publish the TER of all their funds. But maybe funds held WITHIN a stakeholder slipped through the legal/regulatory net.

2. Maybe as someone suggested Scottish Widows have simply increased the AMC so that is is exactly the same as the TER.

dunstonh

As I said in post #7, most have equalised their amc and TER to be the same on their internal life and pension funds.

There is no such thing as stakeholder funds. The rules apply to the contract, not the investments used by the contract.