Possible serious problem with pension unit pricing

wombat42_2

I have a personal pension with Merchant Investors who provide a list of about 100 unit trusts from various providers. Using the internet, I spent a while tracking the percentage changes in the underlying unit trust prices against the percentage changes in the equivalent pension unit price for two particular funds I was invested in.

One reason why i did this was that the underlying unit trust price was available nearly a day before the pension unit price so I could predict the pension price a bit earlier. For one unit trust the percentage changes exactly matched but for another unit trust there were sometimes major inconsistencies such as the unit trust going up one day and the pension unit price going down for the same day. I was also aware of a few issues with a third fund.

Anyway I have lodged this problem as a complaint with Merchant Investors who are now doing a thorough job looking at this. They have warned me that it could take a long time to investigate this problem for me.

Anyway this is potentially very worrying. How on earth does anyone know if personal pension prices properly match the underlying unit trust prices for every day and for every fund ?

One advantage of a SIPP is that the pricing is more transparent - it is simply the unit trust price.

If just one discrepancy is found then theoretically Merchant Investors would have to check the unit price for every buy or sell transaction for every customer they had ever had.

Even worse, if any pension unit prices were wrong on any day, investment decisions might have been wrongly made looking at incorrect unit prices at any time, not just at buy or sell time.

dipsomaniac

If just one discrepancy is found then theoretically Merchant Investors would have to check the unit price for every buy or sell transaction for every customer they had ever had.

there are various checks and balances to try to ensure that the fund is priced corrected. if a fund moves +/- 0.5% relative to its index on a any day all components affecting the price of the fund are re-checked. when mistakes do happen the only people affected are those that traded in that fund while the price was incorrect. some people will be better off, some worse off. the people worse off will be compensated.

Even worse, if any pension unit prices were wrong on any day, investment decisions might have been wrongly made looking at incorrect unit prices at any time, not just at buy or sell time.

as the difference is likely to be less than 0.5% for a short period of time it is unlikely to make much difference.

wombat42_2

dipsomaniac wrote: »

there are various checks and balances to try to ensure that the fund is priced corrected. if a fund moves +/- 0.5% relative to its index on a any day all components affecting the price of the fund are re-checked. when mistakes do happen the only people affected are those that traded in that fund while the price was incorrect. some people will be better off, some worse off. the people worse off will be compensated.

as the difference is likely to be less than 0.5% for a short period of time it is unlikely to make much difference.

Rechecked by whom ? The funds I was in, being volatile, moved up or down by more than 0.5% most days. One discrepancy I had on one day, was the unit trust going up by 0.6% but the pension unit price went down by 1.2%.

dipsomaniac

Rechecked by whom ? The funds I was in, being volatile, moved up or down by more than 0.5% most days.

i am talking about the fund. the pricing department who value the fund will have various checks and balances in place to try to ensure the fund is priced correctly. one of those checks will be to re-check all figures should the fund moves by +/- 0.5% in relation to its index and not just whether it moves by more than 0.5% on a daily basis.

differences in price could be tax issues or timing related.

dipsomaniac

slight cross of wires. i have been talking about the underly collective investment scheme and how they try to ensure the funds are priced correctly.

merchant investors only supply the products. you have access to the external fund managers through there products. most of these companies that offer external or mirror funds do state that the performance can differ from the underlying cis.

wombat42_2

dipsomaniac wrote: »

slight cross of wires. i have been talking about the underly collective investment scheme and how they try to ensure the funds are priced correctly.

merchant investors only supply the products. you have access to the external fund managers through there products. most of these companies that offer external or mirror funds do state that the performance can differ from the underlying cis.

But obviously Merchant Investors cant just make the figures up as they go along. There has to be some rules and i suspect there could be major problems that no-one has picked up.

As i said, SIPPs seem much more preferable than pension units as they are transparent.

dunstonh

As i said, SIPPs seem much more preferable than pension units as they are transparent.

Thats like comparing petrol and cars. SIPPs are a tax wrapper and not an investment. pension funds are an investment and not a tax wrapper.

The same administration takes place on pension funds as it does on unit trust funds. Both of which can be held in personal pensions or SIPPs so there is no difference.

wombat42_2

dunstonh wrote: »

Thats like comparing petrol and cars. SIPPs are a tax wrapper and not an investment. pension funds are an investment and not a tax wrapper.

The same administration takes place on pension funds as it does on unit trust funds. Both of which can be held in personal pensions or SIPPs so there is no difference.

Yes but the SIPP uses widely published unit trust prices directly rather than more obscure PP prices which are derived from unit trust prices using a secret formula.

dunstonh

Yes but the SIPP uses widely published unit trust prices directly rather than more obscure PP prices which are derived from unit trust prices using a secret formula.

Pension unit prices are published daily in exactly the same way. Only on occupational schemes (such as COMPS/CIMPS) or individually negotiated schemes are unit prices often not available on data sources (such as lipper or financial express).

wombat42_2

dunstonh wrote: »

Pension unit prices are published daily in exactly the same way. Only on occupational schemes (such as COMPS/CIMPS) or individually negotiated schemes are unit prices often not available on data sources (such as lipper or financial express).

Yes the merchant investors PP prices are updated daily on their website but this is the sole source of information. The PP price of one fund i have been monitoring has had a completely static PP price for about a week yet the underlying unit trust is highly volatile so that cant be right for a start.

dunstonh

wombat42 wrote: »

Yes the merchant investors PP prices are updated daily on their website but this is the sole source of information. The PP price of one fund i have been monitoring has had a completely static PP price for about a week yet the underlying unit trust is highly volatile so that cant be right for a start.

Just because they dont update their website daily, doesnt mean the price isnt changing.

I just checked financial express and MI funds are there and being updated daily (and they are the largest datasource provider). I also checked to see what fund codes MI published and they had unit codes, mex codes, citi codes, SEDOL and ISIN codes. That is all the major ones.

So, I'm not sure why you though the information was only available on the MI website. Even software like MSN Money would could have shown it.