SW charges and discounts - is this good value?

jifmoose

As part of generally getting my stuff together in financial matters, I've finally got around to looking at my various work pensions - in particular charges and whether they're good value.

I was lucky that in my feckless younger days I was signed up to the (Scottish Widows) company pension, assigned to a middle-of-the-road "growth" investment strategy, and even contributed a bit. At the time I didn't think/care much about it - I see my initial monthly contribution was £24! - but as time went on I started to take it more seriously, take advantage of employer contributions and salary sacrifice, and built up a pot of about 88K.

That was a couple of jobs ago, so I have a number of other (workplace, DC) pensions too. All of these are no-frills bog-standard arrangements, though I have been pretty happy about the growth. One thing I've never bothered too much about are the fees. Again, I've been pleasantly surprised as these seem to me to be pretty reasonable:

• Pension A, Scottish Widows: 0.44% "Yearly Fund Charges". Not being payed into.
• Pension B: 0.31% "Total Charge". (I think, there is some annoying contradiction here). Not being payed into.
• Pension C: 0.35% "Annual fund charges" + 0.05% "Transaction costs" = 0.4% (Payed into).

So first question - is this sort of rate competitive, for this kind of very basic passive pension? Bit of searching around it sounds like it's in the ballpark.

Second question is probably more interesting. Back in 2013 when I started pension A I definitely didn't clock this amongst the enormous pile of paperasserie sent my SW. Fortunately I did keep it, and it's a bit puzzling. So my annual SW statement indicates the 0.44% "Yearly Fund Charge" should be:

the weighted average Total Annual Fund Charge. It's worked out based on your total plan value, split across the various funds in the proportion invested. The Total Annual Fund Charge is made up of the Annual Management Charge plus other expenses less any discount.

Yearly fund charges vary between 1% and 1.74% for various investments. So why is my "yearly fund charge" lower? Because I get money back!

You have also received a discount of £512.97 on one or more of your funds

This "discount" is not alluded to anywhere else (and it isn't clear whether it applies to all funds or a specified one).

When I first spotted this a couple of years ago I assumed it was some kind of rebate because of the fund had performed so poorly and lost money! (2023). But in the original documentation sent in 2013, I see that this was made explicit, and a table of discounted charges for the different funds included.

What puzzles me is that these discounted rates seem to have been negotiated by my old employer (which no longer exists, following takeovers and mergers). In the original guide, they state:

The plan has an annual management charge (AMC) of 0.5%, whilst you are employed by [Old Company Ltd] and contribute to the scheme. That means 0.5% of the value of your fund is taken as a charge by Scottish Widows. If contribution to the plan cease the AMC will increase to 1.0%, however if you continue to pay a minimum of £20 a month [it won't].

Now I haven't been employed by this company or its successors for 3 years and haven't contributed anything into it for 5 years - but I'm not seeing anything like 1% charges! Could this have been renegotiated, e.g. when the company was first taken over in 2016? Is this just a mistake? To add to the confusion, this talks about the AMC which is supposed to be before i.e. "less any discounts". 

SW web portal doesn't shed any light on this - doesn't have anything about charges at all.

Certainly nothing to complain about, if 0.44% is the true annual total cost, I'm pretty happy with this! It's a bit puzzling though.

(I probably have about 25 years to retirement)

Albermarle

Many pensions have a management charge/platform charge, and a separate investment fund charge.
The former you pay every month and you can see that coming out of your pot.
The latter is taken within the investment fund, so you do not explicitly see it.

To confuse things some providers just have one charge for both, although if you choose expensive investments they will increase the charge.

Normally nowadays employer discounts carry on, even if you have left the company. The rules changed at some point.

I have a SW pension from an ex employer. Management charge is 0.1% and investment charges are 0.1% to 0.3%.
It was a huge employer and they did a good deal.
I have another similar pension with a different but similar provider.
They charge 1% all in for standard investments and I get a 0.65% discount.

ali_bear

The charges you are paying are about typical. You could pay less perhaps or you could be paying quite a lot more. 

The long term growth of the underlying investments is the important thing. 

jifmoose

Thanks both. Glad to hear the charges are in the right ballpark. Apart from years where there's clearly been "stuff going on" growth has been pretty sound, so happy with this as a basic option (if one of these pensions was performing really badly/very expensive, I was considering combining them. Pension B made this a massive pain when I tried to do this a few years ago and I actually gave up, but to be fair in the interim has grown well).

Yep that must be right - the rules must have changed so the discount lives on. Good good!

Albermarle

jifmoose said:

Thanks both. Glad to hear the charges are in the right ballpark. Apart from years where there's clearly been "stuff going on" growth has been pretty sound, so happy with this as a basic option (if one of these pensions was performing really badly/very expensive, I was considering combining them. Pension B made this a massive pain when I tried to do this a few years ago and I actually gave up, but to be fair in the interim has grown well).

Yep that must be right - the rules must have changed so the discount lives on. Good good!

There will always be years with 'things going on', and dramatic headlines about crashing markets etc.
That is the way these markets work and it will never change.
Investing is a long term game.