Pension charges query

SallyG

I asked my pension company for an account of all £p payments/charges/fees paid to them from my pension fund over the past year. I asked if they could express the charges as £p so as to make them easily understandable to me.
[I'd seen an account/report for someone's Prudential GPP, based on unit price like mine, which listed all charges as £p per month]
Their response:
"With regard to your queries I can confirm that not physical charge has been deducted from your policy since inception.
As fund based renewal commission is not applicable for this plan, the only charges applicable are the Annual Management Charges [please see enclosed leaflet]
Please note that the Annual Management Charges are charged by the Bid Price on a daily basis and is not coming off the policy.

Yours ..... "

.."the Annual Management Charges are charged by the Bid Price on a daily basis and is not coming off the policy."
Please can anyone tell me what this means?

DavidLaGuardia

SallyG wrote: »

.."the Annual Management Charges are charged by the Bid Price on a daily basis and is not coming off the policy."
Please can anyone tell me what this means?

Smoke and mirrors methinks on this last bit. Prudnetial are paying for the plan via the charges on the fund held in it.

The AMC is a percentage taken out of the fund. E.g. If the Annual charge (AMC) was 1.2% and taken monthly then you would be paying 0.1% of the value. In pounds, shilling and pence a 0.1% would be £1 for every £1,000 you have in there.

The only way of estimating this specific monthly cost is to divided the AMC by twelve and estimate the balance this applies to.

It gets more confusing as the AMC is not representative of the costs. Many funds now attempt to show another figure called the Total Expense Ratio (TER) which includes the effect of incidental expenses over the year.The accuracy of this can vary and Insurance companies are notoriously opaque.

Many costs are not even present in the TER. These are the costs that any fund has through trading such as stamp duty on shares and the fees they pay on the markets to acquire the assets (spreads). A fund with a high turnover through trasing and inflows and outflows adds to this and the cost of investing can head north of 2 or even 3% [The idea that a stakeholder plan only costs 1 or 1.5% is misleading] If they get a good return doing this by skill or luck you may not worry.

I am sorry if I have only confused you more here but it is an immensely difficult thing to assess the total costs on a fund.

SallyG

Thank you.
I should make clear that the letter I quote from is not from Prudential.
It was from my pension provider Scottish Widows.
Seeing an example of a Prudential annual report apparently setting out the precise monthly charges encouraged me to ask for the same type of report from Scottish Widows.
From what you've said it seems unlikely that anyone can be sure of what
they're paying but I can't help thinking that Scottish Widows must have a good idea of what my/each individual pension fund is generating for them or is that naive?

dunstonh

Legacy With Profit plans deducted charges within the fund before announcing the bonus rate. So, there is no explicit charge. instead it was charged implictly. A bit like a savings account.

However, it is possible to calculate the charge using software.

CannySaver_2

Hi

It's interesting that people tend to focus on charges whilst often ignoring performance.

I agree that charges are important, but personally I look for "value for money" and not "cost". I always want to drive down cost, for example I'll always haggle with an adviser if I think they are overcharging, however I want information about performance too; its only when I have information on both charges and performance that I can work out whether I am getting value for money.

Just making the point that the OP should look at performance as well as charges, both are key to the long term increase in value, or not as the case may be.

The Canny Saver

DavidLaGuardia

CannySaver wrote: »

Hi

It's interesting that people tend to focus on charges whilst often ignoring performance.

The Canny Saver

Performance of asset classes and specific market areas: yes.

Performance of specific funds: questionable.

90% of perfromace can be put down to asset class. It is estimated that 2% of returns come down to skill meaning many active managers wipe out benefits via portfolio turnover. Managers having hot hands over short periods gets them high ratings and nice reports for a whlle but these stars soon explode into supernovas that are then sucked in by the porkies of a self promoting investment management industry. Rant over :eek: