Pension charges

SallyG

http://www.telegraph.co.uk/pensions-retirement/financial-planning/tory-mp-pension-companies-have-social-duty-cut-charges/
Tom Tugendhat MP writes
"I was sent regular statements of my pension with management fees identified but only when I asked specifically did I discover the truth. The charges applied to my savings were three times the management charge and probably more. So many of the fees were hidden.
Transaction charges – billed every time a trade is made – added up and combined with ongoing charges, legal fees, foreign exchange fees and many more. They collectively make the highlighted charge not just wrong but deceptive.
Worse still, when I asked for the full cost I was told it was too hard to calculate. The threat of a "freedom of information" request or a question in Parliament got the answer I needed within a day."

So how do we phrase the question to our pension companies in order to get information on hidden transaction charges and what do we do about it when they refuse?

quotememiserable

The quoted charges are the ones levied by the pensions company. Dealing charges are from share dealing companies. You know a way that can be done free of charge?

dunstonh

The MP in the article appears to be very confused. He threaten a freedom of information act request to a commercial company for example.

Trading charges, legal fees and foreign exchange fees all sound like non-mainstream investment assets were being used.

And then to top it off, he uses the effect of charges over the period in future money terms comparing it to todays money with no consideration for inflation.

coyrls

dunstonh wrote: »

The MP in the article appears to be very confused. He threaten a freedom of information act request to a commercial company for example.

Trading charges, legal fees and foreign exchange fees all sound like non-mainstream investment assets were being used.

And then to top it off, he uses the effect of charges over the period in future money terms comparing it to todays money with no consideration for inflation.

He may be referring to fund management costs (trading charges, legal fees and foreign exchange fees) that are not included in the OCF.

Bootsox

To me, the only way to get around the "smoke and mirrors" lack of transparency concerning fund/pension charges is to use a pension platform that allows the purchase of shares in individual companies.

Risky but there you are.

Thrugelmir

Bootsox wrote: »

To me, the only way to get around the "smoke and mirrors" lack of transparency concerning fund/pension charges is to use a pension platform that allows the purchase of shares in individual companies.

Risky but there you are.

Purchasing shares is very easy. Researching shares on a continual basis is a different matter. Unlike fund managers other than the shareholders agm, you won't get access to company management. Paying for analysts research is expensive too. Then there's the issue of buying shares across different global markets in different currencies to be considered.

bowlhead99

coyrls wrote: »

He may be referring to fund management costs (trading charges, legal fees and foreign exchange fees) that are not included in the OCF.

Legal fees would (for most funds) form part of OCF where borne by the fund rather than the manager.

Trading costs and forex costs will be borne when an investment is bought and sold. If you buy £99.5 worth of assets it might cost you £100 to buy them and then when you sell them you might have disposed of assets that someone notionally paid you £121 for which you only received £120. In that case the fund would realise a capital gain of £20 on its purchase cost of £100 and record that 20% gain in its financial reports. The investor can see if he is satisfied with returns of that level, and if not, stop using those funds.

The issue is perhaps that it could have been a higher gain if only the transaction could have magically been done without paying anyone to broker the trade and without having anyone take a fee when converting your currency. The way accounting works is to say you paid £100 and you received £120, rather than to imagine what you might have had in a fee-free world and then put the difference as costs/losses.

Sometimes there is an element of cheekiness about the way fees are reported because when brokers set their dealing cost / commission rate on big trades at 0.1% or whatever, they sometimes price it based on bundling advice costs / information costs / broker recommendation services in with the trading commissions paid. If you had had to pay a separate fixed monthly subscription for those services it would go through OCF rather than reducing the gains on the trades, and would be more transparent, so I am all in favour of that.

Still, if the fund is using expensive service providers that inherently hurt investor returns, that will be fully reflected in the bottom line price that the units are valued at. Just like if the investment manager makes suboptimal decisions and bad investment choices, it will be reflected in the bottom line. Even if you 'hide' costs by not splitting them out, you can't hide their effect on the performance. So I'm generally not too fussed about things being hidden in the investment cost and proceeds lines on the cashflow statements rather than the operating cost lines, because the costs don't actually disappear.

In one sense, if the investment manager gets you a return of 10% when his peer down the road made 15% after taking broadly equivalent risks, it's like you're "paying" a fee of 5% for your manager's incompetence, even though not explicitly charged. You don't need to see a line in the P&L putting a fake theoretical gain that you didn't get and then a 'manager idiocy' charge. You can simply tell whether you like the overall return for the year just by looking at the bottom line of how the fund performed. So, similarly, I don't necessarily need to see a fake 'theoretical gain' from a world in which stockbroking and currency exchange was free, and then those broker fees and fx costs taken off to get to my actual return. I'll just look at the bottom line.

charoniv

>> Still, if the fund is using expensive service providers that inherently hurt investor returns, that will be fully reflected in the bottom line price that the units are valued at.

Isn't that just suggesting funds don't need to declare any fees, everything can be included in the performance and investment decisions can be made on that? (I can see that working for comparing passive funds).
The problem I can see is that this would only work if historic performance was a guide to future performance. Could be that a fund was early in it's positions (spotted a bubble?) but with low costs so could do well soon, against another that wasn't preparing for the future but had the same performance due to high costs.

Not saying I see a way out of this, nor that this sort of detail would be a good idea - except maybe to highlight artificial churn.