Pension Maintenance charges being paid for by selling fund units

Elderr

Hi,  I've recently been reviewing my various pension schemes.  I discovered that an Aviva scheme (formally Friends Provident) I stopped contributing to back in 2010 has gradually been decreasing in Unit numbers whereas the number of units in my other closed schemes have stayed the same (reduced by 300 units since 2013).  I have finally had an answer from then to say that they have been reducing my Units each year in order to take money to pay for my annual maintenance fees.   
Is this normal?  is this allowed??  It would seem to me that if they take 40 units from me one year that were worth say £1.50 to pay for a £60 maintenance charge then potentially I have lost out on whatever those 40 units would have been worth in future years eg if they were were valued at £2.20 in a few years then I will have lost out on £28.  Its not huge amounts of money but enough that I'm very annoyed I'm being over charged and that they were doing this without my knowledge.  I plan to transfer the funds to another scheme now either way but I wanted to check if i had any recourse before I closed the account.  Any advice?  Is this the new PPI?  

SonOf

Is this normal?
yes.   Indeed, until relatively recent years, it was the only way.  Pension funds were nearly always accumulation units and with no way to hold cash in them, the charges would be paid either within the fund and reflected in the unit price or outside of the fund paid for by sale of units.

 is this allowed?
yes

  It would seem to me that if they take 40 units from me one year that were worth say £1.50 to pay for a £60 maintenance charge then potentially I have lost out on whatever those 40 units would have been worth in future years
Irrelevant as you are still deducted £60 regardless of whatever method they use.      

 Its not huge amounts of money but enough that I'm very annoyed I'm being over charged and that they were doing this without my knowledge.
1 - its not without your knowledge as you agreed to it when you bought it
2 - why do you think you are being overcharged?  

 I plan to transfer the funds to another scheme now either way
And why do you think the new plan will be any different?  (if you do not hold cash within the pension, then sale of units will apply).

but I wanted to check if i had any recourse before I closed the account.
No. It is you misunderstanding things that is the problem here. No wrongdoing by the provider.

 Is this the new PPI? 
Really???

Albermarle

If you transfer to a SIPP , then there is a separate cash account . If the platform fee is due and the cash account is empty  they will sell units ( and charge you for doing it in some cases) . However in this case you have an alternative , in that you can keep the cash account topped up with cash , so there is always enough to pay the fees. Does not save any money though.

Prism

I had an Aviva pension for over 15 years which worked just like this. Absolutely normal and fine too. It meant I never had to think about the platform costs

Elderr

strange that my other pension funds don't work like this.  i will have to see if they hold a cash element.  I'm still moving as this still seems like an expensive way to run things.

Albermarle

strange that my other pension funds don't work like this. 

One point not mentioned is that in this thread we are only talking about the  platform charge that is taken out.

There is also a charge for the actual funds that you are invested in but this is taken out automatically from the fund internally so you never see it . You have to look at the fund factsheet to see what it is . 

 I have a Standard Life scheme and here there is no platform charge ( so no selling of units to pay it) . However the funds are more expensive than with my other pensions. So the end result is similar.

When comparing pension charges , you should look at the total cost . By what method the charges are extracted is not important .

SonOf

Elderr said:

strange that my other pension funds don't work like this.  i will have to see if they hold a cash element.  I'm still moving as this still seems like an expensive way to run things.

How do the other ones work then?
Its not expensive.  Its exactly the same.

Method 1 
Selling units to pay the charges means the unit price is higher on the fund.  
Method 2
If the charges are paid within the fund, then the unit price is lower to reflect that.
Method 3
If there is a cash account and charges are taken from the cash account, then neither the unit price or the number of units is affected but the cash balance goes down by the amount of the charge.

The end result of all three methods is that the value of the pension is lower by exactly the same amount.  Using your example of a £60 charge, all three methods would have £60 paid. No more, no less.

wooder

My wifes pension with Aviva is exactly the same as this.

At first we used to put cash into the cash account to pay the monthly charge but we haven't done that for a while now so we just leave it to them to sell the units to pay the fee. I must say, when we set it up I don't recall there being any ambiguity re the fees, it was all very clear how much it would cost and how their charges would be paid. There was a tiered charging setup in place whereby the more we had in the less it would cost pro rata etc., nothing hidden or undisclosed.

Could I ask, if you didn't realise they would sell units to pay charges and you obviously would know you weren't paying them a monthly fee from your bank, how did you think their charges were being met ?

[Deleted User]

A little surprised that you were invested for so long without understanding your charges.
You would benefit from reviewing your total annual costs (not just the platform fee) and transferring to a cheaper platform and funds, if warranted.