Pension charges - does this sound about right?

greggymagic

Hi All

Just a quick check - I have a flexible PP with Aegon (Scot equitable)

I'm invested in these 3 funds below and the percentage of my contribution is shown.

Aegon mixed - 40%
Se Newton balanced Managed - 40%
Se First St Asia Pl - 20%

Plan Value is about £13.5k

In the last 12 months my gross contributions £2882

Establishment Charges for that period totals £486

My question is does this sound about right? To a relative novice those charges seem quite high so just after some more savvy investors opinions?

Many thanks

GM

zagfles

Looks very high. Wouldn't expect to pay more than 1% pa for a personal pension.

Your_Hero

How did you set the plan up? Was it done by yourself or a financial adviser?

Establishment charge could include more than just the ongoing management. This could include any initial fees you paid for advice, initial fees for the fund, transferring in, ongoing fund charges, ongoing advice from your adviser etc.

Tell us more.

jamesd

The establishment charge would be the payment to the company which sold you the pension,or, I assume, Aegon themselves if you bought direct. Ten years or so ago they had a product that allowed this to be as high as 6% of the money paid in each year. But in your case it seems to be 16.9% and that seems high.

Ask them to explain it.

greggymagic

Hiya - thanks for the repies.

I rang them but they were unclear and tried to fob me off with vague answers about transfer values and how these amounts would get put back into the plan after the first 5 years. I asked for the calculations but they couldn't explain it.

I persisted and when they actually looked at the contributions and charges levied even the phone advisor thought there may be a problem so they've opened an enquiry and will get back to me within 3 days.

It looks like I've been paying escalating charges circa about 18% of my contributions. In fact the total charges over the last 5 years since I started the PP equate to 10% of my total contributions.

In my paperwork I'm aware of an annual management charge of 1% and inital product fees of 1% so I can't see where the charges are gaining momentum.

If it's my !!!! up when I set the plan up with the IFA then so be it but I'd at least like to see the calculations.

I

Your_Hero

I didn't realise you've had it for 5 years. Most older plans ran under the old commission regime so you could be paying more than a more modern plan. It's time you reviewed it and considered transferring it to another provider if this is the case.

dunstonh

I rang them but they were unclear and tried to fob me off with vague answers about transfer values and how these amounts would get put back into the plan after the first 5 years. I asked for the calculations but they couldn't explain it.

They are not fobbing you off. However, you are asking unqualified call centre staff to explain a contract that is normally explained by regulated individuals. The original illustration issued to you (both at point of sale and a second copy issued with cancellation rights) explains the charges very well.

It looks like I've been paying escalating charges circa about 18% of my contributions. In fact the total charges over the last 5 years since I started the PP equate to 10% of my total contributions.

The charge would be 1% default (for internal funds). The adviser charge/commission would be collected over 5 years through the establishment charge which is a percentage of the value. That percentage is level for the 5 year period. However, the value will change in that period. The is only a transfer penalty in the first 5 years to cover the outstanding establishment charge. At the end of year 10, they would return 4% of the value back into the plan and then 0.5% p.a. every year thereafter.

If it's my !!!! up when I set the plan up with the IFA then so be it but I'd at least like to see the calculations.

It wasnt a bad plan for the commission days. Quite cheap in the long run. However, charges have continued to fall and its no longer as cost effective as it once was. That said, if you already have one, then 0.5% p.a from year 11 (and the 4% bonus in year 10) means its probably worth keeping.

greggymagic

HI All

Just to update I have received a letter and the way they've explained it is that the establishment charges are compounded for 5 years and they apply monthly to each contribution PLUS total fund value.

So with a regular contribution of £200 a month you get charged 0.35% on the 200 in month 1

Then in month 2 when you add another contribution of £200 you get charged 0.35% on both month 2's AND also again on Month 1's contribution.(i.e 0.35% of 400 month 2 , 0.35% of 600 month 3, 0.35% 800 month 4 etc).

Month 1 charges : 0.35% of 200
Month 2 charges : 0.35% of 400 (200+200)
Month 3 charges : 0.35% of 600 (200+200+200)
Month 4 charges : 0.35% of 800 (200+200+200+200)
Month 5 charges : 0.35% of 1000 (200+200+200+200+200)
Month 6 charges : 0.35% of 1200 (200+200+200+200+200+200)
Month 7 charges : 0.35% of 1400 (200+200+200+200+200+200+200)
Month 8 charges : 0.35% of 1600 (200+200+200+200+200+200+200+200)
Month 9 charges : 0.35% of 1800 (200+200+200+200+200+200+200+200+200)
Month 10 charges : 0.35% of 2000 (200+200+200+200+200+200+200+200+200+200)
Month 11 charges : 0.35% of 2200 (200+200+200+200+200+200+200+200+200+200+200)
Month 12 charges : 0.35% of 2400 (200+200+200+200+200+200+200+200+200+200+200+200)

So is that the equivalent of 4.2% in charges per year (plus the 1% management charge) each year and a reduction of pot value of about 26% over the first 5 years?

Am I the only one who thinks that that is extremely high charges for just taking the money and buying the same 4 funds every month?

I'm hoping I'm just misunderstanding but at the moment I feel like a bit of a mug as I thought it would be 0.35% per annum plus a 1% management charge?

Drp8713

It does seem a bit odd to pay an advisor huge amounts to put your contributions in two multi asset funds and one random Asian fund (I assume he thought your other funds were lacking Asian exposure, but why not choose funds that weren't?), but if that's what you signed up for.

You could replicate that in ten minutes at next to no cost yourself, but if you have already paid for it as previous posters have said it might not be worth backing out now.

greggymagic

I know - but then again you don't meet many poor IFA's (Cheap shot I'm sorry but they definitly don't do it to meet interesting people)

Also I realise it's not actually 4.2% a year as it's based on regular contributions (like a regulanr saver in reverse) but the actual yearly effective cost is about 2.2% plus 1 percent management charge. But after 5 years I'll effectively havehave paid 21% of month 1's contribution and then 21 - 0.0035% of month 2's contribution and so on and so forth.

dunstonh

I know - but then again you don't meet many poor IFA's (Cheap shot I'm sorry but they definitly don't do it to meet interesting people)

Over half of new advisers into the industry fail within 2 years. Usually in a financially worse situation than they started. Those at the top end do very well, as you woud expect. Those at the bottom and middle end do no differently to other occupations.

but the actual yearly effective cost is about 2.2% plus 1 percent management charge.

I doubt it is that as you are not including the bonuses which would reduce the effective cost.