Question
I have read, with great interest, questions and answers, on this site, relating to the changes re commission and adviser charging coming into force next year, and I was wondering what effect it would have on my existing 'expensive' pension?
I have a personal pension through an IFA that sits on the Skandia platform. I receive a 95% allocation rate on my regular contributions, and pay a 0.75% Annual Management Charge on top of Fund Management Charges with equate to 1.85% (I calculated this by taking individual fund charges and % of portfolio holding). So in total my costs are 2.1375% per annum and more when fund additional expenses are taken into account! This seems very expensive when I compare it with some of the platforms you talk about in your answers. I have the following questions:
1) Why am I paying 0.75% Annual Management Charge, which I assume goes to the platform(?), when other platforms are rebating up to 0.25%?
2) Will the changes next year reduce my costs or am I tied to my original deal?
3) What options do I have to reduce my costs - I want to stay with my IFA as my pension has provided a level of return which I am happy with?
4) When I 1st started this pension, in 2006, the Fund Management Charges worked out at 1.10%, due to various fund switches, advised by my IFA, they are now 1.85%. I was never told that the funds I was moving into were more expensive - what is your view on this?
Thanks again.Answer
I think it's likely you have a Skandia Personal Pension (Single Price), which has a different set of charges to Skandia's current offering, the Collective Retirement Account.
The Personal Pension (Single Price) has a 100% allocation rate with a 0.75% annual charge on pensions worth less than £50,000, falling to 0.25% for pensions of £50,000 or more. It may be your 95% allocation rate is because your IFA is taking 5% initial commission (which is steep) or you have an older Skandia pension on which I can't find details. Either way it's far from desirable, effectively a 5% initial charge on every contribution (unless Skandia is giving you bonus units to compensate in some other way).
To further complicate charging, Skandia generally reduces fund annual charges (total expense ratios) over their standard levels by around 0.2 - 0.5%, but then your IFA may elect to receive fees which are added on to the annual charge. You can view a full list of funds here http://www2.skandia.co.uk/Documents/Informer%20publications/Our-Fund-Ranges/SK3467-Single-Price-stats-our-fund-ranges.pdf.
If the 2.1375% total annual charge includes your adviser's fee/commission, then the pension is more expensive than some of the cheaper lower cost SIPPs, but perhaps not significantly so depending on the size of your pension fund.
If we use Alliance Trust Savings (ATS) as a comparison, the average fund TER after rebates might be around 1%. On top of this we need to add your adviser's fee, perhaps 0.5%, to get 1.5%. ATS also charges £162 a year, equivalent to 0.4% on a £40,000 pension fund - so 1.9% overall.
To answer your questions:
1) Because you're in an older style personal pension that Skandia no longer markets which may have built in sales commissions paid to your IFA within the charging structure. You might also have less than £50,000 invested, which triggers the higher 0.75% annual charge rather than 0.25% Skandia charges on £50,000+ pension funds.
2) The banning of sales commissions on advised sales from 31 December 2012 means that if you want to increase or make new contributions into the pension your IFA will likely have to agree a fee with you rather than receive sales commission (assuming this is how they're currently paid), which could affect total cost. If/when the FSA bans platforms from receiving platform fees from fund managers (due by end of 2013) this could affect you, although it looks as though Skandia either isn't taking this fee or rebating it to offset annual fund charges (in which case probably no impact).
3. Assuming the annual charge works along the lines mentioned earlier, increasing your pension fund to £50,000 will cut the annual fee to 0.25%. If you want to stay with the IFA you could ask him/her to lower their fee (or commission taken), which should reduce the amount being deducted from your pension. You might also request a transfer value from Skandia to see whether there's a penalty for transferring to another pension provider. If there isn't, or it's minimal, then consider whether a move elsewhere would prove better value.
4. Whenever an adviser recommends a fund switch, they should inform you of any costs that will be incurred in doing so, the charges on the new fund and what they'll earn out of it (if anything). If the adviser didn't do this in writing (most likely via the letter or report recommending the switch) then you may have cause for complaint. Although if you're happy with performance and the adviser didn't profit from the switches I wouldn't lose sleep over it.
If I've got the wrong pension or you have follow up questions please post below.
I have read, with great interest, questions and answers, on this site, relating to the changes re commission and adviser charging coming into force next year, and I was wondering what effect it would have on my existing 'expensive' pension?
I have a personal pension through an IFA that sits on the Skandia platform. I receive a 95% allocation rate on my regular contributions, and pay a 0.75% Annual Management Charge on top of Fund Management Charges with equate to 1.85% (I calculated this by taking individual fund charges and % of portfolio holding). So in total my costs are 2.1375% per annum and more when fund additional expenses are taken into account! This seems very expensive when I compare it with some of the platforms you talk about in your answers. I have the following questions:
1) Why am I paying 0.75% Annual Management Charge, which I assume goes to the platform(?), when other platforms are rebating up to 0.25%?
2) Will the changes next year reduce my costs or am I tied to my original deal?
3) What options do I have to reduce my costs - I want to stay with my IFA as my pension has provided a level of return which I am happy with?
4) When I 1st started this pension, in 2006, the Fund Management Charges worked out at 1.10%, due to various fund switches, advised by my IFA, they are now 1.85%. I was never told that the funds I was moving into were more expensive - what is your view on this?
Thanks again.Answer
I think it's likely you have a Skandia Personal Pension (Single Price), which has a different set of charges to Skandia's current offering, the Collective Retirement Account.
The Personal Pension (Single Price) has a 100% allocation rate with a 0.75% annual charge on pensions worth less than £50,000, falling to 0.25% for pensions of £50,000 or more. It may be your 95% allocation rate is because your IFA is taking 5% initial commission (which is steep) or you have an older Skandia pension on which I can't find details. Either way it's far from desirable, effectively a 5% initial charge on every contribution (unless Skandia is giving you bonus units to compensate in some other way).
To further complicate charging, Skandia generally reduces fund annual charges (total expense ratios) over their standard levels by around 0.2 - 0.5%, but then your IFA may elect to receive fees which are added on to the annual charge. You can view a full list of funds here http://www2.skandia.co.uk/Documents/Informer%20publications/Our-Fund-Ranges/SK3467-Single-Price-stats-our-fund-ranges.pdf.
If the 2.1375% total annual charge includes your adviser's fee/commission, then the pension is more expensive than some of the cheaper lower cost SIPPs, but perhaps not significantly so depending on the size of your pension fund.
If we use Alliance Trust Savings (ATS) as a comparison, the average fund TER after rebates might be around 1%. On top of this we need to add your adviser's fee, perhaps 0.5%, to get 1.5%. ATS also charges £162 a year, equivalent to 0.4% on a £40,000 pension fund - so 1.9% overall.
To answer your questions:
1) Because you're in an older style personal pension that Skandia no longer markets which may have built in sales commissions paid to your IFA within the charging structure. You might also have less than £50,000 invested, which triggers the higher 0.75% annual charge rather than 0.25% Skandia charges on £50,000+ pension funds.
2) The banning of sales commissions on advised sales from 31 December 2012 means that if you want to increase or make new contributions into the pension your IFA will likely have to agree a fee with you rather than receive sales commission (assuming this is how they're currently paid), which could affect total cost. If/when the FSA bans platforms from receiving platform fees from fund managers (due by end of 2013) this could affect you, although it looks as though Skandia either isn't taking this fee or rebating it to offset annual fund charges (in which case probably no impact).
3. Assuming the annual charge works along the lines mentioned earlier, increasing your pension fund to £50,000 will cut the annual fee to 0.25%. If you want to stay with the IFA you could ask him/her to lower their fee (or commission taken), which should reduce the amount being deducted from your pension. You might also request a transfer value from Skandia to see whether there's a penalty for transferring to another pension provider. If there isn't, or it's minimal, then consider whether a move elsewhere would prove better value.
4. Whenever an adviser recommends a fund switch, they should inform you of any costs that will be incurred in doing so, the charges on the new fund and what they'll earn out of it (if anything). If the adviser didn't do this in writing (most likely via the letter or report recommending the switch) then you may have cause for complaint. Although if you're happy with performance and the adviser didn't profit from the switches I wouldn't lose sleep over it.
If I've got the wrong pension or you have follow up questions please post below.
Read this Q and A at http://www.candidmoney.com/askjustin/775/is-my-skandia-pension-expensive
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