Undeclared charges on private pension plan

edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning
8 replies 1.2K views
ECOWARRIOR_3ECOWARRIOR_3 Forumite
8 Posts
I have recently discovered that on a long term plan , charges have been made of between 9 - 11% p.a. on the total sum invested besides 1% standard admin charge on each of several Funds. This has never been declared in writing to the Trustees of the plan and has never been included in the 3 page annual Statement for the plan.
It refers to Standard Members Charge when a contribution was changed early in the policy due to undeclared high commission by the sales agent and HMIR regulations.

Comments please

Replies

  • LintonLinton Forumite
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    It sounds like an astonishing charge. For how long has this charge been taken? What is your evidence?
  • dunstonhdunstonh Forumite
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    charges have been made of between 9 - 11% p.a. on the total sum invested

    Are you sure? Figures like that are just not heard of. It has to be a mistake. Even one off initial charges dont tend to go that high (I seem to recall a plan that allowed 8.61% as a maximum one off initial some years back but there was nothing on the regular and it had very low annual charges. It was really a way to cover a fee with no ongoing factoring of the fee into future charges (even that high it would still come in cheaper than a 1% stakeholder). However, 9-11% per annum just cannot work unless it is a very old plan split between initial/capital & accumulation units where a charge of that size could apply to the initial units.
    Comments please

    You havent given us much to go on. Is it a group scheme, COMP/CIMP or personal scheme (or even a defined benefit scheme being misunderstood)? What charges are you referring to?
    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 pension plan is Executive Company Plan as sole employee and trustee.
    As matters are ongoing, this is a similiar scenario.
    Started August 1994 with 3 Funds - 20% global 20% international 60% With Profits Endowment Fund/ High Equity with profits.
    For first 17 months £1000 per month,changed in Jan 1996 as discovered undisclosed high commission rate to sales agent and had to conform to Inland Revenue regulations on total paid in.Regular payments in @ £500 per month since. No withdrawls.
    Total fund value at last statement £ 112,200 Contributions £99,200

    Admin charges £ 7800 over 17 years.

    Undisclosed Paid Up Policy Standard Member Charges £28,000 plus in unit values.

    There is a section concerning changes in contributions in original terms and conditions but no rules on these charges and length of time that they apply. In 2002, there was notification that there would be no PUP SMS charges on future contributions to the plan but these have continued at some 9 - 11% per annum in unit deductions against the total value of the fund..

    The invisible charges were only discovered this year as an explanation was sought against a never seen contribution sheet and request for all previous years revealed the scale of these charges without any notification or disclosure to the trustees of the pension plan.

    Is this just a isolated case ??
  • LintonLinton Forumite
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    I think something is wrong with your maths or your understanding or my understanding of what you are saying...

    You are claiming that 10% of total sum invested is being taken from your account each year is being taken from your account each year.....

    So currently fund value is about £100K and you are adding 6K each year, but £10K is being taken in charges making a net withdrawal of £4K.

    A quick bit of Excel shows me that for the total sum invested to be 10% more than total paid over 14years your charge free return must have been about 12% annually! No way!!!
  • DamaskDamask Forumite
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    I'm confused as to why you'd be paying paid-up charges if you're paying in £500 per month. Paid up means that there's no contributions going in at all.

    You're also certainly no getting the growth to cover that level of charges... with 60% in With Profits Endowment (which has guaranteed growth of around 5.5% per year) and High Equity With Profits (Reversionary bonuses increase the unit price and the highest was 7% back in 1996... between 0.25% - 2% for the last 7 years)

    I'm more with dunstonh's idea of initial charges - but in the form of initial units... and with that company the charges would be built into the unit price.

    Looking at the other 2 funds, Global performance is 21% over 5 years and international is 10.42%/5 years.

    To sustain charges of 10-11% each year, the fund value would have dropped.

    This would also have been obvious from any projections... especially since the statutory money purchase projection only projects growth at 7%.
  • dunstonhdunstonh Forumite
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    The invisible charges were only discovered this year as an explanation was sought against a never seen contribution sheet and request for all previous years revealed the scale of these charges without any notification or disclosure to the trustees of the pension plan.

    It was taken out in 1994 and illustrations were norm by then. Issued at point of sale and sent in the post again with cancellation rights. So, non-disclosure would be pretty hard to claim. If one didnt issue the documents then the other catches it.
    In 2002, there was notification that there would be no PUP SMS charges on future contributions to the plan but these have continued at some 9 - 11% per annum in unit deductions against the total value of the fund..

    Is there capital/initial units as well as accumulation units? Capital units are the ones that suffer the charges mostly. Whilst you dont see them much nowadays as they are a bit yesteryear, they were very common back in 94. Capital units could easily have a 10% a year charge. However, that doesnt mean they are expensive. The accumulation units could have little or no charges.
    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.
  • I believe that we are getting to the core of the matter. The With Profits Endowment Fund was closed in 1998 and replaced by the High equity with Profits fund. It is the first closed fund that is attracting nearly 50% of the pup smc costs since.There is allegedly a 17% terminal bonus due on retirement date.
    What is confusing that the 1% charge appears to be on all 4 funds but is contained within Admin charge and PUP SMC (which is 300% greater ).

    With approx 18 months to run til the plan becomes potentially to fruition, what are the best options - charges are now taking a large proportion of the annual contributions.
  • DamaskDamask Forumite
    32 Posts
    Still slightly confused by the pup charges, since they'd be at policy level not fund level...

    The AMC for your policy is held within the unit price... you won't see any deductions for that at all.

    The terminal bonus is slightly more tricky than just 17%... it all depends on the month the money was invested, the current value of that money and the bonus rate for that month.

    For example... £500 for 2 months... month 1 bonus rate is 10%, month 2 bonus rate is 5%. Month 1's £500 is worth £1000 on surrender, and month 2's £500 is worth £750. The bonus is (£1000 x 10%) + (£750 x 5%) = £137.50.

    The bonus rates are also updated quarterly. So there's 6 changes to the rates to go yet.

    I'd also imagine that if you've got all those charges, then you'll have a surrender charge to contend with too. A simple transfer value may not make it obvious, since the terminal bonuses may "hide" it.
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