Bid offer spread, is this considered an exit charge?

patricia1066

Hi
a family member is considering his options with an Abbey Life personal pension. If he transfers this into a SIPP, it is likely that it will be liquidated, as the funds are not available on the open market.

There are no longer any overt exit charges. However, the bid offer spread is 64p and 78p of 26,000 Acc. units in total.

This will amount to a loss of almost £20,000. Then there will be the trading costs, and upfront costs of purchasing unit trusts again.

The fund is doing well, and he can defer taking his money, but he will have to take the loss at some point.

Is this bid/offer spread an exit charge, or not?

Linton

Bid/offer spreads are more usually seen as entry charges, not exit charges. So from that point of view he has already made the loss when he bought the units. The reason for bid/offer spreads is to compensate the fund for the cost of setting up a new unit holder or to discourage short term buying/selling.

However does it matter whether you see it as an exit charge or not?

ffacoffipawb

Linton wrote: »

However does it matter whether you see it as an exit charge or not?

Yes, because exit charges will soon be capped at 1% for those over age 55.

Unfortunately the bid/offer spread is not an exit charge.

WillowCat

The fund will be valued using the lower price, so they will actually get the full value. As said above, it would cost more to buy again what he already has - it is an entry cost.

jamesd

There isn't likely to be much spread when rebuying. Most funds today are OEICs and those don't have that sort of spread, just a very small window in the single price that they quote. Initial charges are eliminated for almost all funds of any type as well on most platforms.

Significant bid-offer spreads today are most likely to be seen on commercial property unit trusts. Those spreads have been declining as the selling pressure from last summer that led to many blocking withdrawals have abated.

dunstonh

Bid offer spread, is this considered an exit charge?

bid/offer spreads are only charged on contribution. Not again on exit.

This will amount to a loss of almost £20,000.

How will that happen as they are not going to be with AL after it is transferred out?

As said above, it would cost more to buy again what he already has - it is an entry cost.

Not it wouldnt.
1 - you cant buy AL funds on the open market (and you woudlnt want to even if you could)
2 - if it concerns you then stick to mono charged funds.

patricia1066

Thanks dunstonh that makes sense.