SJPs 6% entry charge for pension clients & EWC

PJR2000

I POSTED THIS ORIGINALLY ON THE S&I BOARD TODAY AND THEN REALISED THE PENSIONS BOARD WAS PROBABLY BETTER - PLEASE EXCUSE THE DUPLICATION

On 17th Oct SJP announced various changes to their product charges, including pensions. There have also been various comments since asking why the Early Withdrawal Charge has not been waived for existing pension clients.

The reason behind this is because SJP charge 6% up front on day 1 as a Deferred Sales Charge. This means for a £100k pension moved to SJP you immediately lose £6k, leaving you £94k. On your account statement you will then be shown an "Account Value" of £100k and a "Surrender Value" of £94k.

Assuming no mkt movements for simplicity sake, over the next 6 years the Account Value will reduce by 1% per annum until it too eventually reaches the same £94k as the Surrender Value. However, at all times you will only have had £94k in your pension pot. The initial £100k Acct Value is essentially meaningless.

If a client then switches their pension away after say 3 years, only 3% of the 6% DSC taken on day 1 will have been "expensed" by that point. So your Account Value is now £97k compared to your Surrender Value and actual pension pot of £94k. This means an EWC needs to apply to write off the residual £3k of the DSC not yet expensed.

For the EWC to be waived for existing clients SJP would have to refund the residual portions of the commissions they took upfront to those clients that leave in the first 6 years.

The EWC doesn't apply if you stay invested for more than 6 years because after that point it becomes redundant, since the 6% DSC has by then been fully expensed. Your Acct Value will now match your Surrender Value more or less.

The problems with DSCs generally in financial services can include:

1. Clients stay invested longer to "avoid" the EWC. Not realising it's just an acctg tidy up of a charge they already paid on day 1.
2. Clients may believe that the Surrender Value is only relevant to them if they leave their provider. It is actually the only relevant number they should ever look at.
3. Clients may believe they have £100k invested when its only £94k.


Would welcome any comments from SJP pension clients to see how the DSC, EWC and Surrender Value were explained to you??


For interest sake, the table below also shows the increase in charges for new pension clients from 2025 onwards (excludes underlying fund charges) over the first 10 yrs. The new structure works out more expensive for 17-18 yrs before turning in the clients favour, according to the SJP CFO on their 17th Oct webcast.

Pat38493

PJR2000 said:

The reason behind this is because SJP charge 6% up front on day 1 

And people agree to this?  Sorry, I am not an SJP customer but I certainly won't ever be with those kind of up front charges.

Seems like smoke and mirrors to me - call it an exit charge or a deferred commission or whatever but the result is the same.

PJR2000

You are quite correct. From a cash perspective, a deferred sales charge and initial up front fee are the same. You pay the full commission on day 1.

From an accounting perspective the DSC is then "spread" over 6 years to try and make the impact less obvious to clients, either way the money's gone.

Pat38493

PJR2000 said:

You are quite correct. From a cash perspective, a deferred sales charge and initial up front fee are the same. You pay the full commission on day 1.

From an accounting perspective the DSC is then "spread" over 6 years to try and make the impact less obvious to clients, either way the money's gone.

Yes - but presumably SJP control their own business and they could choose to waive the settling of those charges even for existing customers if they really put their mind to it.  If they are saying - oh we can't do this because it was already charged up front, to me that is nonsense - they could just give you a theoretical fund exit discount equivalent to the remaining accrued commission charge so that you don't pay an exit fee - they have chosen not to do so.  If they are trying to say it was "out of their hands" I don't really agree.

wjr4

You’d have to be blind to see how many negative posts SJP get. They are known for high charges, exit fees & underperforming funds. 

artyboy

Indeed, the OP is preaching to the choir by posting this here. But then they have also cross posted this on the Savings and Investments board so I wonder if they are trying to drum up support for some formal action against SJP.

The ex-PPI ambulance chasers are already circling here...

Albermarle

PJR2000 said:

I POSTED THIS ORIGINALLY ON THE S&I BOARD TODAY AND THEN REALISED THE PENSIONS BOARD WAS PROBABLY BETTER - PLEASE EXCUSE THE DUPLICATION

On 17th Oct SJP announced various changes to their product charges, including pensions. There have also been various comments since asking why the Early Withdrawal Charge has not been waived for existing pension clients.

The reason behind this is because SJP charge 6% up front on day 1 as a Deferred Sales Charge. This means for a £100k pension moved to SJP you immediately lose £6k, leaving you £94k. On your account statement you will then be shown an "Account Value" of £100k and a "Surrender Value" of £94k.

Assuming no mkt movements for simplicity sake, over the next 6 years the Account Value will reduce by 1% per annum until it too eventually reaches the same £94k as the Surrender Value. However, at all times you will only have had £94k in your pension pot. The initial £100k Acct Value is essentially meaningless.

If a client then switches their pension away after say 3 years, only 3% of the 6% DSC taken on day 1 will have been "expensed" by that point. So your Account Value is now £97k compared to your Surrender Value and actual pension pot of £94k. This means an EWC needs to apply to write off the residual £3k of the DSC not yet expensed.

For the EWC to be waived for existing clients SJP would have to refund the residual portions of the commissions they took upfront to those clients that leave in the first 6 years.

The EWC doesn't apply if you stay invested for more than 6 years because after that point it becomes redundant, since the 6% DSC has by then been fully expensed. Your Acct Value will now match your Surrender Value more or less.

The problems with DSCs generally in financial services can include:

1. Clients stay invested longer to "avoid" the EWC. Not realising it's just an acctg tidy up of a charge they already paid on day 1.
2. Clients may believe that the Surrender Value is only relevant to them if they leave their provider. It is actually the only relevant number they should ever look at.
3. Clients may believe they have £100k invested when its only £94k.


Would welcome any comments from SJP pension clients to see how the DSC, EWC and Surrender Value were explained to you??


For interest sake, the table below also shows the increase in charges for new pension clients from 2025 onwards (excludes underlying fund charges) over the first 10 yrs. The new structure works out more expensive for 17-18 yrs before turning in the clients favour, according to the SJP CFO on their 17th Oct webcast.

You will find that none of the regular posters on here are SJP customers, for obvious reasons. So detailed feedback will be limited.

michaels

At £50k for a £1m pension pot, I hope they are extremely good biscuits that the advisor brings round.....

handful

I was with them (long story and I would use an embarrassed emoji here if there was one)  I definitely stayed with them longer than I would have in the belief I would be hit with the EWC and waited for the bulk of the sum invested to be past the 6 year period. I always took the surrender value on the portal as the amount I would receive in the transfer and that the fund value was the amount prior to the EWC being applied. I always thought it was the higher amount invested, not the surrender value.

I agree with artyboy though, this sounds like a PPI ambulance chase in the offing and I don't want to be part of that, just happy to be clear of them and that I only put part of my pension with them.

PJR2000

Pat38493 said:

PJR2000 said:

You are quite correct. From a cash perspective, a deferred sales charge and initial up front fee are the same. You pay the full commission on day 1.

From an accounting perspective the DSC is then "spread" over 6 years to try and make the impact less obvious to clients, either way the money's gone.

Yes - but presumably SJP control their own business and they could choose to waive the settling of those charges even for existing customers if they really put their mind to it.  If they are saying - oh we can't do this because it was already charged up front, to me that is nonsense - they could just give you a theoretical fund exit discount equivalent to the remaining accrued commission charge so that you don't pay an exit fee - they have chosen not to do so.  If they are trying to say it was "out of their hands" I don't really agree.

The 6% has already been spent paying the SJP advisor (mainly) and the rest to the company. 

There's nothing to stop SJP offering a client a refund of a previous charge, but it would come as an expense to the company & hit their P&L/cashflow if they were to do so.

PJR2000

artyboy said:

Indeed, the OP is preaching to the choir by posting this here. But then they have also cross posted this on the Savings and Investments board so I wonder if they are trying to drum up support for some formal action against SJP.

The ex-PPI ambulance chasers are already circling here...

I work in financial services but not in claims management. I started looking into SJP following an FT article at the beginning of Sept that referenced the EWC because i know that deferred sales charges are not understood, including by those that sell them.

Following the 17th Oct announcement on changes to charges not one single article i read online, including by some quite prominent journalists, showed they had any understanding of how SJP works. This included a Citywire article quoting a fund manager who is one of their biggest shareholders who publicly admitted even he didn't understand them. Go figure his investment case.

Just trying to shed some light for those that might want to know.