Personal pension charges?

wary

I confess that I'm also confused between charges & commission. Please can someone help to clarify:
- is Annual Management Charge (AMC) the amount that the pension company deduct each year for running the fund and is totally separate to commission?
- is IFA commission typically paid from the annual charge deducted by the pension company or by reducing the overall value of the fund, or how? One pension provider intimated that the IFA commission is taken out of the annual charge (1%) yet said that they're not currently getting any commission because I'm not currently contributing even though an annual change is deducted.
- I have a pension (set up about 10 years ago) with a different provider with a discounted 0.8% annual charge. According to the most recent single contribution, my IFA is receiving around 3.75% commission on each gross payment so this obviously can't be deducted from an annual management charge.

I'd like to understand what is usual (both now & 10 years ago) regarding when/how an IFA gets commission and where this is paid from. This relates to
- initial commission for having set up the policy
- ongoing commission for each contribution made
- annual commission on top of these, perhaps based upon a percentage of the fund?

dunstonh

- is Annual Management Charge (AMC) the amount that the pension company deduct each year for running the fund and is totally separate to commission?

yes.

- is IFA commission typically paid from the annual charge deducted by the pension company or by reducing the overall value of the fund, or how?

On a stakeholder or mono charged personal pension (AMC only) the IFA is paid out of the annual management charge. Not in addition to.

One pension provider intimated that the IFA commission is taken out of the annual charge (1%) yet said that they're not currently getting any commission because I'm not currently contributing even though an annual change is deducted.

That is correct and is why often mono charged plans are not as good as multi-charge plans and also why the providers will no longer be able to set remuneration after 2012. With a mono charge plan, even after the cost of the advice has been met, they still leave the AMC the same. A multi-charge plan can get ride of the cost of the advice in the first 1-5 years and then drop back to an AMC that is lower once that is covered. However, multi-charge is not always best. Short term provision can often be better on mono charge.

- I have a pension (set up about 10 years ago) with a different provider with a discounted 0.8% annual charge. According to the most recent single contribution, my IFA is receiving around 3.75% commission on each gross payment so this obviously can't be deducted from an annual management charge.

Thats a legacy pension. Older contracts are often more expensive than newer ones. Although that too is not always true.

I'd like to understand what is usual (both now & 10 years ago) regarding when/how an IFA gets commission and where this is paid from. This relates to
- initial commission for having set up the policy

Depends on age, amounts, term to retirement and what level of service you want and how you want to pay (fee, commission or fee taken from pension).

- ongoing commission for each contribution made

Again depends.

- annual commission on top of these, perhaps based upon a percentage of the fund?

Very few pensions do this and pay an upfront amount as well. Usually its either fund based trail or initial or a combination of both which reduces one or the other. Assuming no discounting, whatever option the adviser takes, it usually has no impact on the charges.

The problem with answering your questions is that you are expecting things to be the same across the board. They are not. You have different contracts, different types of pensions, different types of IFAs offering different types of service with different types of charges. The providers will often cater for different business models and different clients. Some may focus on high net worth and others may focus on the lower value but higher volume business. So, the product for higher net worth may be very attractive to them but expensive and wasteful for others.

When you go into a supermarket to buy a sauce, you go to sauces section and you see all these different types with different flavours and different prices. They are all sauces but all different. Some will be similar. Some will be cheap. Some will be expensive. Pensions are much the same. They may all be called pension but they can be very different. Most are variations of a theme though so you should be able to get the idea. However, always focus on the charges you pay. Not the commission. You could have one product with a reduction in yield of 1% paying the IFA £600 and another with a reduction in yield of 0.6% paying the IFA £1500. The latter pays more to the IFA but is cheaper for you.

atw_uss

Sorry about the confusion re. the personal pension / stakeholder. I was originally interested in a stakeholder pension, as Iwill hopefully only need it for 3 years and then will be able to go into an employment based scheme again.

The adviser from Barclays was aware of this, but said a personal pension would make more sense as I wished to invest £200 (£250 after tax relief). He said that people using stakeholder pensions tended to want to invest less than this each month. He also added that personal pension funds tend to be more actively managed, making them better performaers on the whole. Therefore, I agreed to go with the personal pension option.

I had done quite a lot of homework prior to this, thanks to some advice from this site. Although the stakeholder sounded good, the personal pension was also attractive as presented by the adviser. What I was totally unaware of was that there would be this £600 charge ... I assume this would not be the case for a stakeholder. Given the likely 3 year term of my commitment to this pension, the fee represents 3 months of payments (8.3%) and would appear to make it a less sensible option, unless the personal pension performs extremely highly over the next three years compared with the stakeholder.

dunstonh

He said that people using stakeholder pensions tended to want to invest less than this each month

Amount doesnt matter. What you do with it does.

He also added that personal pension funds tend to be more actively managed

Not necessarily. Personal pensions offer the stakeholder (internal) funds as well as a larger range of externally managed funds which tend to be a bit more expensive. If you dont utilise those funds and only use the internal funds then there is no difference.

What I was totally unaware of was that there would be this £600 charge ... I assume this would not be the case for a stakeholder.

If it is the mono charge contract (AMC) only then there is no £600 charge. If it is an explicit charge, it will state so in the "what are the charges" section. AXA deduct it as a monthly payment for 3 or so years. It does state it on the illustration if that is the case. However, if its the mono charge version then it will only mention the annual management charge.

Given the likely 3 year term of my commitment to this pension, the fee represents 3 months of payments (8.3%) and would appear to make it a less sensible option

In your case a mono charge pension makes perfect sense. Not a multi-charge pension. AXA offer both versions.

unless the personal pension performs extremely highly over the next three years compared with the stakeholder.

Unrealistic to assume that and not worth the risk.

A stakeholder is the logical choice here or a mono charged personal pension. Not a multi-charge pension.

atw_uss

Thank you - the information here has clarified a lot for me, especially in the context of tomorrow morning's telephone calls.

The information from AXA says I have a 30-day right to cancel, with any money paid refunded in full.

Can I safely assume that if I do decide to cancel, I will not be liable for the £600 fee ... i.e. this is only due to the adviser once the 30-day cooling off period is complete. The letter would seem to indicate that this is the case: "If you cancel your plan, we will repay the money you have paid, free of any charges."

wary

Thanks DunstonH for a comprehensive response as always. I take your point that pensions are greatly varied and also one should focus on the charges rather than the commission.

However, I'm still a bit confused re where the commission comes from. For example, the IFA received initial commission for a policy set up two years ago which amounts to around 25% of the current total fund, whereas AMC is 1% pa which clearly doesn't cover it. Similarly with my 9-year-old policy, the AMC is 0.8% (discounted from 1%) whereas my IFA gets 3.75% of all gross contributions (maybe some initial commission too) which again I'm not convinced will necessarily have been covered by all AMC payments especially in the early years. So where would this money come from? Is it still from the AMC but it's on a catch-up basis?

My pension policies are not true Stakeholder but are "Stakeholder Friendly", if that's of relevance.

dunstonh

However, I'm still a bit confused re where the commission comes from. For example, the IFA received initial commission for a policy set up two years ago which amounts to around 25% of the current total fund, whereas AMC is 1% pa which clearly doesn't cover it.

Correct. The pension provider takes the hit for 10-15 years.

So where would this money come from? Is it still from the AMC but it's on a catch-up basis?

On mono charged contracts, yes it is.

My pension policies are not true Stakeholder but are "Stakeholder Friendly", if that's of relevance.

Stakeholder friendly is not a term I like as its either stakeholder or it isnt. However, it is generally used by marketing to indicate that it is at least equal to a stakeholder. It has to be mono charged as well so the AMC will be the only charge.

atw_uss

Just a little update on the weekend's saga...

I spoke to AXA this morning who confirmed that the £600 would indeed be paid by me, through 24 monthly payments if £25. I have decided to cancel the plan, as it doesn't seem the best option for a potential 3 year investment term - 8.3% of my contributions plus the usual charges are too much as far as I am concerned. I will be refunded in full.

Barclays were very understanding but insisted that no rules seemed to have been contravened. The manager I spoke to did, however acknowledge that I should have been informed about the £600 fee, although I'm not sure whether this is necessary under current FSA guidelines. He also pointed out that I should have received some "terms and conditions" documents at the time of signing - I did not.

I'm much happier now, but feel that this sort of problem could so easily have been avoided by greater transparency during the application process. Mine is only one incidence, and I'm sure the overwhelming majority go smoothly. Nevertheless, it made for a worried weekend and I wasted quite a bit of time today when I was already busy.

Moral of the story? I'm not sure there is one, but read all the small print carefully, and don't blindly trust a bank you've been with for 23 years.

dunstonh

I spoke to AXA this morning who confirmed that the £600 would indeed be paid by me, through 24 monthly payments if £25. I have decided to cancel the plan, as it doesn't seem the best option for a potential 3 year investment term - 8.3% of my contributions plus the usual charges are too much as far as I am concerned. I will be refunded in full.

Based on what you said on this thread you have been mis-sold. You should consider making a complaint.

Barclays were very understanding but insisted that no rules seemed to have been contravened. The manager I spoke to did, however acknowledge that I should have been informed about the £600 fee, although I'm not sure whether this is necessary under current FSA guidelines. He also pointed out that I should have received some "terms and conditions" documents at the time of signing - I did not.

The plan you were sold is not stakeholder friendly as you were told and your objectives do not suit a multi-charge plan but do suit a mono charged plan.

FSA rule RU64 states that stakeholders have to be recommended unless the alternative option can be evidenced to be better than stakeholder. There is no way that a multi-charge plan would ever come close to be being better than a mono charged plan based on what you have said.

The AXA PPP is multi-charge on the version you have and that is fine for someone with 20 years of more to retirement who is either only making single premiums or going to be consistent with their regular contributions. It will beat stakeholder in those cases. However, your objectives make a multi-charge plan unsuitable.

and don't blindly trust a bank you've been with for 23 years.

Banks are known to be the worst offenders. Over 50% of complaints to the FOS.

We know why the sales rep sold the AXA PPP personal pension. It pays up front commission. The AXA stakeholder doesnt.

Barclays are fobbing you off but what happened to you is a blatant breach of rules as well as really poor advice. Barclays also seem to be one of the most frequent names that comes up when it comes to mis-sales.

Some people are quick to complain when they shouldnt and others need to complain when but wont. Your case is a complete disgrace and you should complain.

whiteflag_3

dunstonh wrote: »

Based on what you said on this thread you have been mis-sold. You should consider making a complaint.

The plan you were sold is not stakeholder friendly as you were told and your objectives do not suit a multi-charge plan but do suit a mono charged plan.

FSA rule RU64 states that stakeholders have to be recommended unless the alternative option can be evidenced to be better than stakeholder. There is no way that a multi-charge plan would ever come close to be being better than a mono charged plan based on what you have said.

The AXA PPP is multi-charge on the version you have and that is fine for someone with 20 years of more to retirement who is either only making single premiums or going to be consistent with their regular contributions. It will beat stakeholder in those cases. However, your objectives make a multi-charge plan unsuitable.

Banks are known to be the worst offenders. Over 50% of complaints to the FOS.

We know why the sales rep sold the AXA PPP personal pension. It pays up front commission. The AXA stakeholder doesnt.

Barclays are fobbing you off but what happened to you is a blatant breach of rules as well as really poor advice. Barclays also seem to be one of the most frequent names that comes up when it comes to mis-sales.

Some people are quick to complain when they shouldnt and others need to complain when but wont. Your case is a complete disgrace and you should complain.

To help regular readers understand complaint procedures can you just confirm the difference between this case and this

http://forums.moneysavingexpert.com/showthread.html?t=2069655&highlight=mvr

What could Judith hope to gain from complaining as no loss has been made? Wont some poor sod end up with a complaint against them which will stay with them when they try to leave the IFA traing school?