% fees pensions

tickledpink1

With off-the-shelf pensions with fees of 0.5%, eg Pension bee, how are the fees worked out? 

Pension Bee says it charges monthly but takes one annual fee, which is confusing.

Do they a) take 0.5% of what's in the fund each month (a new contribution being added each month plus compound interest) and add the 12 figures to make an annual fee?

Or b) take 0.5% of what's in the fund at the end of the year as the annual fee?

Would the 2 methods provide different totals? You can probably tell my maths isn't brilliant!

dunstonh

Pension Bee says it charges monthly but takes one annual fee, which is confusing.

Are you sure you have that the right way round?
Normally, fees are disclosed as annual but collected monthly.

Some providers calculate it daily and then collect the amount monthly.  Some take a snapshot value on that day in the month and use that.

incus432

tickledpink1 said:

With off-the-shelf pensions with fees of 0.5%, eg Pension bee, how are the fees worked out?

A charge of 0.5% - their cheapest plan- sounds quite high to me for a pension using a passive tracker fund (it appears to comprise 65% dev world equities, 15% UK equities, and 20% UK gilts and bonds).  

I think you could get similar with Vanguard for 0.15% platform plus fund fees (0.12% for Dev world to 0.22% for Life Strategy 80) - ie 0.27 to 0.37%.  And with investments small numbers can make a big difference.  Aj Bell also do all in for 0.45%.  Shop around

tickledpink1

I'm trying to work out how much the fees might actually be.

If I contribute £500/month to AJ Bell's ready-made pension, I pay 0.45% in fees annually.

I calculate that the fees might be less than £400/year by the end of 10 years, when I will be 69, and might total less than £2000. Does that sound plausible and a sensible amount?

incus432

Contributing £500 a month = 6000 pa, so after 10 years you would have paid in 60k. At that point 0.45% of 60k is £270 but the fund value could be more (hopefully) or less than that depending on markets so impossible to predict the fee. You can work out the total you would pay if no growth by adding up each year's fees.

Is it a sensible amount? It's really your decision. You could reduce it by choosing lower cost funds/ETFs in a SIPP (AJ Bell* cap their SIPP patform fee at 120 pa if you only hold ETFs) but you may not want the hassle of choosing investments etc. So eg on 60k that might be 0.1% of 60k plus 120 =180 rather than 270.  Not a huge difference - unless/until the fund gets bigger. 

*There may be lower cost options out there

tickledpink1

You correctly say that 0.45% of £60,000 is £270 but surely I would be paying 0.45% of the whole fund, including compound interest, each year ie 10 different payments. I estimate the fees will be nearly £200 for years 1 to 3 combined.

No, I don't know enough about it to choose my own investments. I've narrowed it down to a ready-made pension with Vanguard, Nutmeg or AJ Bell and the like.

QrizB

tickledpink1 said:

You correctly say that 0.45% of £60,000 is £270 but surely I would be paying 0.45% of the whole fund, including compound interest, each year ie 10 different payments.

If you model it as compound interest (not perfect, but close) and ignore any fund growth it's £1229 over the 10-year period.

Using Vanguard and VHVG for a total of 0.27% costs £734 on the same basis.

https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator

incus432

That £270 is the annual fee at the end of Year 10. 

Yes you pay 0.45% of the whole fund, but my point is you do not know how big that fund will be. It's not really compound interest as it's not a savings account guaranteed to grow at x% a year.  Investments may go down as well as up. 

I estimate total of fees in y1-3 as 125 if zero growth

tickledpink1

incus432 said:

I think you could get similar with Vanguard for 0.15% platform plus fund fees (0.12% for Dev world to 0.22% for Life Strategy 80) - ie 0.27 to 0.37%.  

Is this a ready-made pension? This is all new to me.

incus432

No its not a ready made pension- that's one very large investment fund that tracks the whole developed world stock market index.

https://www.ajbell.co.uk/market-research/LSE:VHVG 0.12%

This is another very similar tracker https://www.ajbell.co.uk/market-research/LSE:SWLD

Many people just invest in one global fund.  Many of these ready made pension funds are just packaged blends of that and some bond funds. At a cost though.

I'd suggest you do some more reading on investing - I dont want to bamboozle you with too much information. Try this https://monevator.com/category/investing/passive-investing-investing/