FA/Pension advisors answers to my questions: Comments please?

dunstonh

Just some things that have shocked me/opened my eyes-
The fact that the IFA gets £427 for each person he signs up (not that it affects me, i guess)

Is that all?

That the 'Effect of deductions' on the first years contributions of £1357 is just £7 but in year 29 the 'Effect of deductions' is a whopping £20,900 on the contributions of £40,493!! Wow that is a huge sum!! (

You are ignoring inflation. It isnt £40,493 in todays terms. That is in future money terms. It is akin to saying that if you didnt have to buy food to eat and then that money was invested at 7% then you would be £x amount better off in 40 years time.

buel

Sorry for the confusion Dunstonh, when i said 'Wow that is a huge sum', i was referring to the deductions of £20,900, ie-over half of what i had put in.in contributions.

That is a hefty amount for managing the fund, surely?

Aegis

buel wrote: »

Sorry for the confusion Dunstonh, when i said 'Wow that is a huge sum', i was referring to the deductions of £20,900, ie-over half of what i had put in.in contributions.

That is a hefty amount for managing the fund, surely?

That's not the deductions themselves, it's the effect of those deductions compounded at a rate of 7% per year. As such, if you paid £1,000 charges in the first year, the effect of that deduction after 20 years would be £3,870 (using their assumption of underlying growth rate), but the total actual deduction would still only be £1,000.

What the effect of deductions is telling you is the difference between your portfolio running at an assumed rate of return with charges vs another portfolio running at the exact same underlying rate of return but with no fees at all, i.e. no managers being paid, no holding charges, no admin fees, etc.

dunstonh

Aegis has said it well.

Plus, remember that you are making the common error of looking at £20,900 in todays money. Not in year 29 money as you should be. Think about inflation. 29 years ago, you would buy a house for £20,900 and have change. You are not paying £20,900 today so you cannot look at it with todays money values.