Is my Skandia pension expensive?

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.

Read this Q and A at http://www.candidmoney.com/askjustin/775/is-my-skandia-pension-expensive

NFU with-profits pension change?

Question
I wonder whether how many other CM users have received the letter dated October 2012 from NFU Mutual stating that the current NFU With Profits Personal Pension Plan will close to new subscribers as from 31 Dec 12, and that existing subscribers will be limited to making regular payments at the level as at 31 Dec and that there will in future be no facilities for increasing or restarting regular payments or making lump sum contributions.

The first paragraph of the letter (from Tim McKeon Head of Life Services) states: 'The changes are necessary because the FSA has introduced new rules, as part of the Retail Distribution Review, that affect the way in which the Plan will operate in the future'.

I wonder if there are others who share my disappointment at what seem to be fairly drastic and draconian changes to a Plan, which otherwise appears to conform to a fairly standard pension plan model, at rather short notice, bearing in mind that most personal pension plan subscribers will probably want to stay in a scheme and use the facilities for 20 - 40 years.

If anyone can shed any light on why NFU Mutual have chosen to do this, I would be grateful for enlightenment. I should add that my family and I have similar personal pension plans with four other providers, none of which have so far made changes to these other plans, as a result of RDR. Answer
Sorry for the slow reply, been waiting on an answer from NFU which I've now finally received.

The issue here is the sales commissions currently built into the NFU Personal Pension Plan, used to pay for advice. The FSA's Retail Distribution Review will ban such commissions from 31 December 2012 for new advised sales, meaning the NFU pension will no longer be allowed in its current form if you want to restart or make additional contributions over and above your regular amount.

Under the new rules advisers will have to be paid via explicit fees, either charged directly to you or taken from the product with your permission - the latter is typically referred to as 'adviser charging'.

Most financial providers have already adapted or will adapt their existing product range to facilitate adviser charging, but in NFU's case they've decided to launch a new personal pension with this facility instead. So should you wish to increase/restart your NFU pension contributions from next year you'll have to either use the new pension or take your custom elsewhere to another provider.

I can see this proving an annoyance for some existing customers and it remains to be seen how the new pension charges will stack up against the existing, including the cost of advice (you may or may not be receiving). But provided charges don't increase and your eventual with-profits final bonus ends up being unaffected (i.e. the amount aggregated across the two plans is no different to all your money being in the one existing plan) then there doesn't seem any reason to be concerned.

For your information, here's NFU's response:

"RDR requires us to charge explicitly for advice. We believe that many of our customers will want to pay their advice charges from within their pension plans and this will require changes to our systems. The cost of the change in relation to the With-Profits Personal Pension Plan is judged to be uneconomic, given the number of policies we have sold and are likely to sell in future.

We have therefore developed a new pension plan for launch on 31st December 2012 to enable us to include the option to pay advice charges from the plan. This new plan includes With-Profits as well as a wider selection of investment-linked funds.

Consequently, we have decided not to amend the current With-Profits Personal Pension Plan but to allow existing customers to maintain their current contributions and to make available an improved pension plan for new customers and to enable existing customers to make additional contributions."

Read this Q and A at http://www.candidmoney.com/askjustin/771/nfu-with-profits-pension-change

Advisers incentivised to sell fixed term annuities?

Question
Thank you for providing such a great site! My question concerns Fixed Term Annuities.Is there any financial advantage to an annuity broker or financial adviser to promote this type of annuity against a traditional life time annuity? I am suspicious that there will be another fee to pay when the fixed term is up and another review is required.Answer
Fixed term annuities can be used in some pensions as a way to avoid locking into low current lifetime annuity rates. The fixed term annuity provides income for a set number of years after which you receive a guaranteed maturity payout, which can either be invested in your pension (if you opt for the income drawdown route) or a lifetime annuity (i.e. income for life).

As the rates offered by fixed term annuities are usually worse than lifetime annuities, you're only likely to benefit if lifetime annuity rates show a healthy increase (compared to the present) or your health deteriorates (probably increasing your lifetime annuity rate) by the time the fixed term annuity matures.

In my view fixed term annuities are generally not a good idea, unless you're confident either of the above will apply.

You're right to be suspicious. While the sales commissions paid on fixed term annuities tend to be similar to lifetime annuities, less scrupulous financial advisers may prefer them as they'll try and take another bite of your pie when the annuity matures, by selling you another (advisers will have to be fee-based from 31 December this year, but instead of commission they'll likely try and pocket a fee on maturity for further 'advice').

Read this Q and A at http://www.candidmoney.com/askjustin/773/advisers-incentivised-to-sell-fixed-term-annuities

DIY personal injury trust?

Question
Does a person wanting to have a Personal Injury Trust drawn up have to use a professional person to do so, or can he/she write one out themselves. If it is possible to have a D.I.Y. Personal Injury Trust Deed, do you know where would I find a template to help?Answer
The usual rationale behind using a personal injury trust is to protect a compensation payment from affecting your entitlement to means tested state benefits. Although, of course, if the amount is significant and the injury serious a trust also provides a legal means for others (called 'trustees') to manage the money on the injured's behalf and in their best interests.

At their simplest a personal injury trust is little more than a type of bare trust, which is money for old rope as far as solicitors are concerned. However, I'm afraid I've been unable to find any diy versions or templates - so unless any readers can point out a viable alternative it looks like you'll need to use a solicitor.

In more complex cases I wouldn't hesitate to use a solicitor, although trustees should be careful who they use to advise on what to do with the money held within (as the solicitor might try and push financial advisers with whom they have a cosy relationship, with little regard for whether they're actually any good).

Sorry I can't be of more help.

Read this Q and A at http://www.candidmoney.com/askjustin/768/diy-personal-injury-trust

How do offset mortgages work?

Question
I have paid off the mortgage on my house and was thinking of taking out an offset mortgage in case I ever need a substantial lump sum of cash and was surprised when the Bank I asked about this said they needed to know what I intended to do with the money, as they only advanced money against the house for certain specific purposes such as home improvements or purchase of a car.

I thought an offset mortgage was more like an overdraft, and one could take up to your agreed maximum loan to value any time you wanted within the term of the mortgage and could pay back however much you want any time within the term?

Can you briefly explain how an offset mortgage works please.Answer
This surprises me too, as how you spend your money isn't really your bank's business. My guess if they'd prefer you to spend the money on your house as it increases the value of the asset against which they loan the money, but I've not heard of them actually stipulating this before. And, in any case, provided the bank agrees to a sensible loan to value (of your property) then they should be more than covered in any case.

Your definition of an offset mortgage is spot on. If you have an outstanding mortgage then you can use savings to offset the balance owed (normally via a linked current/savings account), reducing your monthly interest payments (which effectively equates to tax-free interest). Or, as in your case, if the mortgage is already paid off the offset mortgage acts like a big overdraft facility that usually benefits from far lower rates of interest than other forms of borrowing.

I'd try speaking to some other lenders who hopefully won't impose such a draconian condition. Or, provided you don't have to sign anything to the effect, simply tell the lender you spoke to you intend to spend the money on home improvements - banks are constantly economical with the truth to their customers, so why not play them at their own game.

Read this Q and A at http://www.candidmoney.com/askjustin/767/how-do-offset-mortgages-work

Can I manage my wifes ISAs?

Question
I am interested in setting up/transferring some ISAs for myself and my wife using a Discount Broker. Will I be able to act on my wife's behalf doing this so that our investments are all in the same place?Answer
Yes, but your wife may need to sign some letters/forms along the way.

The simplest scenario would be if your ISAs are already held on a fund platform, for example Cofunds or FundsNetwork. In this instance your funds are already held in one place, making monitoring and subsequent fund switches very straightforward. Benefitting from a discount broker (who offers trail commission rebates) simply means signing a 'change of agency' form or letter (your wife would need to sign for her ISAs) and the ISAs can remain in situ with the platform.

Given most platforms allow you to manage your investments online, it would be straightforward for you to look after your wife's ISAs (including subsequent switches) provided she's happy to give you her login details. If you want to make switches and get information over the phone or in writing then your wife would normally need to sign a letter giving you permission to do so, which would be sent to the discount broker and platform.

If the ISAs are currently held with different ISA providers and you want to consolidate onto one platform then you and your wife will need to complete ISA transfer forms, supplied by the discount broker. Once the transfer is complete, you can manage the investments as per above.

Read this Q and A at http://www.candidmoney.com/askjustin/766/can-i-manage-my-wifes-isas