Help demystifying multi-tier pension charges

sterlingstash

Hi to all you esteemed and knowledgeable pension experts. I am hoping you can help me shed some light on the impenetrable sphere of pension charges.

I am helping my OH decide what to do about a pension with her new company.
It is a small company and until now has had no company pension scheme but would pay into people’s personal pension (company contribution 6% to employee's 5%). They have now set up a new company pension with Aviva. Wife’s old company pension is also with Aviva but now closed to new contributions as she has left. She is 30 and the combined contribution (her+ employer) will be about £325 gross p/m.

I am trying to make sense of the new pension charges to be able to compare to the possible alternative of a personal pension with Aviva through Cavendish (0.45% AMC) as long as the company is willing to pay into that instead (as per her current terms of contract).

Reviewing the key facts doc, the new company Aviva pension appears to be multi-tier and is pretty complicated. This is from the Key Facts doc:

5% bid/offer spread
Monthly plan fee of £2.60
FMC for investment linked funds of 0.875%
'Loyalty units may reduce the FMC after 5th plan anniversary to the value of 1/20th of 1% of fund value allocated more than 4 years before previous anniversary (so that is nice and straightforward then!)

It also says
‘The percentage of contributions which will be used to buy units is:
82% of first 27 months contributions
102% of next 33 months contributions
105% after that (which presumably offsets the bid/offer spread??)

Now, I am quite a whizz with Excel, but seriously….. This seems to be a plan designed to make the charges as opaque and incomparable as physically possible. I have taken on board what Dunstonh has previously said about multi-tier pensions being better in the long run for younger people, but can this one seriously compete with a 0.45% AMC (reducing to 0.4% over £50,000 which she might hit in 5 or so years time if she transfers her existing Aviva pot also)?

(the other IFA info for the plan if it helps at all is
Commission option – Full Lautro Initial & Renewal Commission
Enhancement – 150%
Commission Foregone – 105%
Indemnity Terms – Yes )

Any comments/advice most gratefully received.

bilbo51

sterlingstash wrote: »

'Loyalty units may reduce the FMC after 5th plan anniversary to the value of 1/20th of 1% of fund value allocated more than 4 years before previous anniversary (so that is nice and straightforward then!)'

Thanks for sharing that - now I just have to clean the coffee from my keyboard again...

sterlingstash

Yep, I was expecting 'now take away the number you first thought of' to appear somewhere in there - Oh hang on, its charges so more like 'now multiply by the number you first thought of'......

dunstonh

This seems to be a plan designed to make the charges as opaque and incomparable as physically possible.

Multi charge plans are not as easy to compare as mono charged plans. However, there are a number of software providers that allow comparisons. Plus, the most simple comparison for a consumer is to compare projections from a mono charged plan with a multi-charge plan.

I have taken on board what Dunstonh has previously said about multi-tier pensions being better in the long run for younger people, but can this one seriously compete with a 0.45% AMC (reducing to 0.4% over £50,000 which she might hit in 5 or so years time if she transfers her existing Aviva pot also)?

The plan details you have given don't match Aviva's current product range. Modern multi-charge plans tend to be initial charge, annual charge and then fund based discounts (some may have a bonus added). The description you have given looks very old fashioned. Its charging method appears to be pre 2001 standards. Indeed, from around 1998, we knew what 2001 standards were going to be and you had to be "stakeholder friendly" by the late 90s. I wouldnt want to compare it without sticking it through the pensions software as it would be impossible by hand.

sterlingstash

Thanks for this insight Dunstonh
Interesting that this isn't the latest offer, given that it has just been set up by an IFA. I was going to ask about whether the new 2013 rules would mean that better pensions may be on offer soon, but I had read that most of the current pensions already met these criteria. If this one might not, this doesn't bode well.
Without a good means of comparing the two, I can't help preferring the transparency of the mono-charge. (I might see if I can get a forecast for the Cavendish Aviva policy based on identical assumptions - not sure this is possible under the Cavendish rebate, but if I could get one for the standard Aviva mono-charge then I could probably calculate the additional benefit of the lower AMC).
I also don;t like some of the references about the monthly charge potentially changing if she leaves the company and it becomes a personal pension (the change in rate not specified of course....). Flexibility is important with so much time till retirement.

I'm not one of these people who thinks that charges are unfair, and understand the overheads, transaction charges, admin and research which must be covered by the providers and the experience of the IFAs. However, the opaqueness of these type of schemes cannot be good for the consumer. Hmmm, I may just write and tell the FSA my thoughts, that'll change things!!

dunstonh

nteresting that this isn't the latest offer, given that it has just been set up by an IFA.

If its a legacy group scheme set up a very long time ago, then those old fashioned terms will still apply to new joiners today.

I was going to ask about whether the new 2013 rules would mean that better pensions may be on offer soon, but I had read that most of the current pensions already met these criteria. If this one might not, this doesn't bode well.

Most of the modern plans now meet post RDR criteria. However, plans set up from as long ago as 1988 can still be topped up using 1988 terms. Group schemes use the terms agreed at the start of the group scheme set up. Not those available today. This one appears old fashioned and expensive as much as you can work it out. Its about time the employer approached the IFA to get the scheme updated to something more modern. It may take a staff member or two to prompt the employer.

I can't help preferring the transparency of the mono-charge.

The Multi Charge Aviva PPP should be on the Cavendish site and you should look at as even in mono charge form (which is possible) it can still beat the stakeholder.

Hmmm, I may just write and tell the FSA my thoughts, that'll change things!!

On a good day they will ask you what you mean by mono charge or multi charge pension. On a bad day they will ask you what you mean by pension.