Pension charges advice to understand please?

Skinnydad

I had a recent statement in from my pension provider and I can't see anywhere on it where it tells me how much they have changed me to maintain and handle my SIPP. I was hoping to get a basic statement that says of the xxxx you have in your pot here is what we've charged you to maintain this. This would be an annual statement, therefore I'd assume annually. I can see how they have split my pension up and where each portion is invested. I also see the following columns detailing information


Fund management charge (%)
Additional expenses (%)
Additional admin charge (%)


for example: I can see


Aberdeen Asia Pacific
Fund value 2.80%
Growth rate 7.0%
Fund management charge 1.000 (%)
Additional expenses 0.130 (%)
Additional admin charge 0.600 (%)


what does this mean in charges is it 1% or is it 1 + 0.130 + 0.600 which equals 1.73%


If this is the case and I have funds spread over 27 investments this adds up to a considerable charge.


Have I got this correct?


I just don't think I'm getting a good return for my investments. I know the markets are poor but think I should be getting a better return.


Any advice appreciated.


Thanks SD

Linton

Based on other sources of data (Trustnet) the 1.73 figure would seem to be about right. In addition there would be the charges made by the SIPP provider which wouldnt be allocated per fund, but rather charged to the SIPP as a whole.

If your funds are not giving the return you want it could be
- you are judging over too short a timescale
- your expectations are unrealistic
- you are invested in the wrong shares/funds
- too high charges

In my view high charges are likely to be the least significant of these four. More information on the others could give people the opportunity to provide suggestions.

dunstonh

I just don't think I'm getting a good return for my investments.

One assumes that this is just one of many funds you hold (that is what is meant to happen with single sector funds). This particular fund had a bad 2013 but performed above sector average in 2010, 2012, 2012 and year to date.

You dont mention the period that covers your perception of poor performance. Every fund can have a bad year (and often do) However, you dont measure quality in just one year.

bigadaj

Skinnydad wrote: »

I had a recent statement in from my pension provider and I can't see anywhere on it where it tells me how much they have changed me to maintain and handle my SIPP. I was hoping to get a basic statement that says of the xxxx you have in your pot here is what we've charged you to maintain this. This would be an annual statement, therefore I'd assume annually. I can see how they have split my pension up and where each portion is invested. I also see the following columns detailing information


Fund management charge (%)
Additional expenses (%)
Additional admin charge (%)


for example: I can see


Aberdeen Asia Pacific
Fund value 2.80%
Growth rate 7.0%
Fund management charge 1.000 (%)
Additional expenses 0.130 (%)
Additional admin charge 0.600 (%)


what does this mean in charges is it 1% or is it 1 + 0.130 + 0.600 which equals 1.73%


If this is the case and I have funds spread over 27 investments this adds up to a considerable charge.


Have I got this correct?


I just don't think I'm getting a good return for my investments. I know the markets are poor but think I should be getting a better return.


Any advice appreciated.


Thanks SD

You are paying an active manager for this fund which partially explains the costs you've incurred.

You could move this into an equivalent tracker fund for the same asset class, region etc and potentially save 0.5-1% in costs. However you lose the active management which some people believe is worth paying for and some don't. Many people believe active management is worthwhile in undeveloped markets and other similarasset classes, whereas in developed markets then trackers are better, only you can make this decision.

dunstonh

bigadaj wrote: »

You are paying an active manager for this fund which partially explains the costs you've incurred.

You could move this into an equivalent tracker fund for the same asset class, region etc and potentially save 0.5-1% in costs. However you lose the active management which some people believe is worth paying for and some don't. Many people believe active management is worthwhile in undeveloped markets and other similarasset classes, whereas in developed markets then trackers are better, only you can make this decision.

Nothing wrong with what you are saying there. However, the op has said he is concerned about performance but his fund has spent more years outperforming the sector average. Whilst a tracker would be cheaper, they typically come in line with sector average. So, he could well end up paying less to get less. At this time, I think knowing why he feels it is underperforming is probably better. Charges are going to be secondary to that.

bigadaj

dunstonh wrote: »

Nothing wrong with what you are saying there. However, the op has said he is concerned about performance but his fund has spent more years outperforming the sector average. Whilst a tracker would be cheaper, they typically come in line with sector average. So, he could well end up paying less to get less. At this time, I think knowing why he feels it is underperforming is probably better. Charges are going to be secondary to that.

Well he sates he's concerned with under performance but the focus of the OP is on charges, my interpretation is that he perceives a lack of value, which might be allayed by a reduction in cost; as to whether that may translate into a reduction in performance is obviously a matter for debate that is ongoing.......

jem16

Skinnydad wrote: »

If this is the case and I have funds spread over 27 investments this adds up to a considerable charge.


Have I got this correct?

I might be reading what you are saying wrongly, but you're giving me the impression that you think if you have 27 funds each with a charge of around 1.73% that you will end up paying 27 times 1.73% which is 46.71%. That would indeed be a considerable charge.

If that's what you are thinking then the answer is no you are not correct. What you would need to do is add up all the fund charges and then divide by 27 to get your average charge for the whole SIPP.

If that's not what you were thinking then ignore my post.

Skinnydad

Thanks for all the replies to date. Thanks Jem your correct that's what I was thinking. I thought if I added up all the charges over the 27 funds it seems a lot. I'll recalculate and post some further figures here. Dunstonh and Bigadaj thanks for your input it's not that I'm complaining about performance If I'm honest this is my wifes fund and we havent a clue whether or not we are getting value for money. My wife asked me to pursue what the charges mean and to find out how we determine what this actually costs each year to maintain..we had a recent statement from the company (Std Life) and from a pot of 200k it was a pension in the region of 8k I think, around 6k if the lump sum is taken. I'll re-check the figures later and confirm. Like a number of people on the forum our concern is ROI and as we both plan to retire in approx. 5 years time (aged 60) we want to get the best possible value for money. Over this period of time my wife could potentially invest a further £130k into this pension fund and we are wondering whether that would be prudent. We understand the tax concessions but like the rest of us after a lifetime of working we want to be comfortable during this phase of our life. Thanks again..

jamesd

From that income value it seems that Standard Life are assuming that you will buy an annuity that increases with RPI inflation and get only 3% of your capital as the income. Given the planned retirement age it also seems as though they may be assuming that you are both of the same age and that there is a requirement for 100% of the income to continue after the first death.

That's a very unpopular choice. Something around 90% of all annuities purchased are level annuities that start paying around twice as much but then don't increase at all with inflation, so the real money value decreases over time as people become less active later in retirement.

Also it seems that they are assuming that there is no desire for inheritance - because the projection plans on spending the money to buy the annuity - and doesn't consider the income drawdown option that's very popular amongst those retiring at young ages.

Income drawdown with a desire to preserve all of the capital for inheritance can pay out something in the 4-5% range, without guarantees. If there is no desire to preserve capital more can be taken at the cost of draining much of the pot if the last life is a long one. Using this approach the spouse gets 100% of the pension pot after the first death into a pension pot of their own. Or alternatively they or anyone else can get it outside a pension after a 55% tax charge. You use an expression of wishes form to say who should get it, a will does not govern this. That's to protect against inheritance tax and give the pension trustee the discretion to deal with changed circumstances without changed instructions, just keep the instructions reasonably current if you do something like remarry.

Skinnydad

Hi Jem16: You are correct. If I add up all the charges I get the following:

Fund Manager Additional Additional Admin Charges
19.95% 3.792% 13.88%


Which totals 37.622%


If you are saying I divide this by the number of funds which are 27 then I get 1.39 is this correct and would this amount to a charge of 1.39%? on a fund of 216k this would amount to roughly £3,010 for the year. Would this seem right?

My fund value last year was £177k and this year it was £216K which means there is a difference of £39k but I paid in £25k leaving a return of £13k. Is it assumed that the company would take their £3k prior to this therefore they returned £16k for the year. Is my thinking correct here?

The projected assumptions are that the plan will grow to £240k over the next 5 years, it’ll be more than that but let’s assume it does only make the £240k. They are saying that this would get my wife a pension of £6480/annum without lump sum or £4860 with lump sum. I think this seems rather low for an investment of £240K. Is this what I should expect as a market average?

I think if she dies then I’ll get a pension of 50% but I’d need to check the literature.

Jamesd we are both of the same age you are correct, as above I think the income after death would be 50% (for her spouse). I don’t really understand the rest of your response, I wouldn’t think that she’ll take an annuity at 60. I don’t really understand income drawdown and inheritance is not something we thought about from our pension. We are hoping our property will be enough for the kids. Plus any savings etc. you have.

Any further advice would be greatly appreciated..

Linton

Skinnydad wrote: »

Hi Jem16: You are correct. If I add up all the charges I get the following:

Fund Manager Additional Additional Admin Charges
19.95% 3.792% 13.88%


Which totals 37.622%
...

You cant add up % as they are % of the money in each fund. So say you had:

Fund 1 - £10,000, 1%
Fund 2 - £20000, 1%
Fund 3 - £30000, 2%
Totqal - £60000
The total charge would be 10000X1/100 + 20000X1/100 +30000X2/100 which gives £900.

So the overall % charge would be 900/60000 = 1.5%