HL charge 1.5% AMC on Income Drawdown

Irish_Stew_2

I have recently received an Income Drawdown illustration from HL. It shows the usual projections at 0%, 2.0% and 4.0% growth. At 0% growth I received no income, but the Funds reduced each year by varying amounts which on calculation represent 1.5%. I couldn't believe that after 10 years at 0% with inflation not taken into account my 'pot' had reduced by 12.5% with no income. I read through the Illustration and found a section (on page 12) regarding charges. There it was - GAD Calculation Fee of £90 (inc vat) which I expected, but also an "Assumed AMC" of 1.5%.

I have read other literature from HL all of which state that with Income Drawdown the AMC is Zero. In fact in an article in Investors Chronicle in 2009 comparing the overall cost of Income Drawdown over 10 years HL was lowest with a charge of £75 (I assume + Vat) whereas the worst was Scottish Widows at 7,333. This Illustration from HL shows that their cost would be £13400 + £75 putting them at the bottom - by a mile!

This would make Income Drawdown a very expensive option. You would need to get 6.0% growth to achieve the same rate as a Fixed Term ISA, and the maximum growth in their illustration is only 4.0%.

Anyone like to comment?

dunstonh

I read through the Illustration and found a section (on page 12) regarding charges. There it was - GAD Calculation Fee of £90 (inc vat) which I expected, but also an "Assumed AMC" of 1.5%.

That must be an old one as you would expect them to use TER and not AMC nowadays. Pension funds should use TER and not AMC for illustrations.

I have read other literature from HL all of which state that with Income Drawdown the AMC is Zero.

Most contracts nowadays charge nothing extra for drawdown. Some do a nominal annual fee but the trend is towards not additional cost.

In fact in an article in Investors Chronicle in 2009 comparing the overall cost of Income Drawdown over 10 years HL was lowest with a charge of £75 (I assume + Vat)

There were contracts available in 2009 that had no drawdown charge. I guess these were not included in that article.

) whereas the worst was Scottish Widows at 7,333.

That isnt comparing like for like. SW do not charge that amount for drawdown. They produce their illustrations with all charges factored in. It looks like that a comparison was made (or you have interpreted it incorrectly) using an explicit charge that only covers one bit of the contract vs all the charges on another contract.

This would make Income Drawdown a very expensive option. You would need to get 6.0% growth to achieve the same rate as a Fixed Term ISA, and the maximum growth in their illustration is only 4.0%.

There is no such thing as maximum growth in an illustration. They provide 3 example illustrations which may or may not reflect the final outcome (statistically there is virtually no chance that any of the three will be correct). The outcomes could be lower or higher. So, you could have investments that average over 10% a year for the last decade but the illustration would still show the three lower example rates.

Also, investment returns are published net of charges. Illustrations show say 4% are 4% return with charges then deducted.

It looks like you have either misread, misunderstood or the article is poorly written.

Irish_Stew_2

I accept that the article in Investors Chronicle dated 27.07.2009 by Moira O'Neill is historical, and I only used this to demonstrate that if HL charge AMC they are now probably the most expensive for Income Drawdown. The Illustration which I received from HL is dated 27.02.2012.

The pension pot is £108K after tax free 25% and as I stated on their 0% projection they show charges starting at £1631 in year 1 (pot £108000) to £1421 in year 10 (pot £94600).

In the other projections, for 2% and 4% growth they add the growth to the pot, take their 1.5% and give me what is left to maintain the 108K pot on the 2% growth this is £522 in year 1 reducing to £520 in yrear 10. On the 4% growth this is £2629 in year 1 reducing to £2,623 in year 10.

As I said in my first post in "What are the Charges" they state that:

• the GAD Calc Fee will be £90.00
• Initial Advisor Fee £0.00
• Advisor Renewal Fee 0%

Other charges will depend upon the investments which you choose, these are

Charges applied to SIPP investments:

• Assumed AMC - 1.5%

It appears from the Illustration that this 1.5% is being applied to the total investment.

BLB53

Possibly the 1.5% relates to the annual charges on the investment funds?

jem16

Irish_Stew wrote: »

I have read other literature from HL all of which state that with Income Drawdown the AMC is Zero.

I think you're getting confused between the costs for Income Drawdown itself (ie AMC of 0%) and the costs for keeping your pension pot invested. ( ie AMC typically 1.5%)

ManAtHome

On my recent illustration, the covering letter states:

"The 1.5% AMC shown on your illustration is not a charge by Hargreaves Lansdowne. The 1.5% represents an estimate of the charges that may be applied by the investments you choose and is based on the average AMC of a unit trust".

dunstonh

Charges applied to SIPP investments:

Assumed AMC - 1.5%

Personally, I do not like that. Other providers use TER. Not AMC. However, if the illustration is generic and an indication of an average for funds then I suppose 1.5% is fair enough. If you had picked your funds then it is not , in my opinion.

That said, you are mixing up fund charges with contract charges.