Charged Up

An email arrived during the week to inform me that my annual pension statement was available and I wondered if I even dare look at it? Not because of the performance of the funds over the year – I’m well aware of that because I check it online on an almost daily basis. No, it’s the fact that the statement will highlight how much I have been charged for the management of my money. Last year I almost fell off my chair when I saw what this amounted to – it was roughly 1% of the fund total. On paper, and when you say it quickly, this can seem almost reasonable. But, if your funds are heading toward the LTA (Lifetime Allowance) territory, that’s quite a substantial charge. No, let’s be honest, it’s a frigging massive amount of money – £10,000 p.a. – which may be charged every year for the next thirty years. Of course, many will feel that if you have a million quid in your pension fund then you deserve to be charged for the management of it, but really, of all the deserving people who might want ten grand of your money, is it the City who should get it? Just because they can?

That’s not to say that this fund is pushing the boundaries of the LTA –  I might have died of shock if it was. As it is, I’m shocked enough that I have no idea whether 1% is a fair charge or not. Similarly, I have no idea what the charge is for, where it is incurred or why it is incurred. My pension is now a mixture of about 25% in bond funds and 75% in stocks and shares represented by (mostly) tracker funds. I would therefore assume there’s not much active management of these funds involved, so why am I being charged such a massive amount of cash for the “management” of it? One of the funds is actively managed by Fidelity (Global Special Situations), although they aren’t the provider for the pension. I assume FIdelity is charging me for this, but is that included in the 1% that my pension provider is levying? Or is that just being deducted as a charge within that fund’s performance? Maybe this information is buried somewhere in my T&C’s, but who reads that stuff? Like the current storm over privacy in social media, it’s not that they don’t tell you what you’re signing up for, they just do it in a sneaky way, burying it within forty pages of legalistic guff that ensures you’ll probably die of boredom trying to read it. I can’t understand why they wouldn’t want to explain the charges in a simple way – if I could see it, I might even believe it was good value. But because I don’t know, I’m suspicious, and suspect I’m being ripped off.

The sum I’ve been charged on this pension dwarfs just about every other monthly sum I budget for – cars, food, heating, council tax, spending money, everything. And, what’s worse, if the fund drops fifty or a hundred grand next year, I’ll still be charged an exorbitant amount for the administration of it. Heads they win and tails you lose. Either way, I’ll still be left with no idea of how this figure has been arrived at and whether or not it’s fair value.

I feel totally exasperated by this situation. Where do I start to find out if I’m being ripped off or not? Last year I posted in several forums, such as the Money Saving Expert one, asking if an overall 1% annual charge on a pension fund was exceptional.  The answers, as far as I remember, were that it “Sounded about right”. Oh, that’s okay then. I should relax and not worry about paying a small fortune for a service that I don’t understand, while feeling guilty that it’s my fault for being too ignorant to understand it. But is it really?

I’ve seen it stated many times by many commentators, who understand the way these things work, that the fees in the finance industry are an absolute scandal. Margins in fund management are over forty percent. Tesco, not an unsuccessful customer focused business, makes a margin of around five percent. One of the main reasons for this is that Tesco are competing every day for customers on price and quality – they are not on the ‘phone fixing their prices to consumers with Asda, Sainsbury, Lidl and Aldi. Nor are they lobbying to be allowed to do so. As consumers, we can choose to shop where we want to based on what we can see and experience. It’s pretty transparent, and the absolute reverse of what we have in the finance industry.

I’ve also read recently of the outrageous fees that some consumers are being charged to take advantage of the “pension freedoms” with their fund provider. Seemingly if you want to regularly drawdown, or take a big lump sum up front, or just generally get your hands on your cash, the provider will gladly charge an arm and a leg for doing any of it. Not that they’ll be up front that it’s an arm and a leg that they’ll take – they might just carve a juicy slice off your arse instead. They’re not about to reveal exactly, in clear English, what cash they intend to take or why and where those charges are being incurred.

At the moment I’m not too sure what to do about this. I could write and ask for a detailed breakdown of where the charges come from, but suspect part of the answer may well be “Providing detail of charges for people like you”. And I doubt their response is likely to be, “Ye Gods, you’re right, we are charging far too much for what we do. Let’s reduce it by two thirds.”

I’d also like to know that if I decide to drawdown, say, £1,000 a month from this fund, then what will I be charged for that service versus, say, taking £12,000 in one lump sum? Or £120,000? Is it the same? They’ll probably tell me if I ask, but whatever the answer is I doubt I’ll be left with a clue as to why I should actually be charged anything for withdrawing my own money when I feel they’ve already been charging me for “managing” it to date. But I feel I should at least make my feelings known and threaten to switch providers if I’m not satisfied with the response. If millions of us did the same then it might change things. I struggle to think of anything else that will.

 

48 thoughts on “Charged Up

  1. Hi. ‘I can’t understand why they wouldn’t want to explain the charges in a simple way – if I could see it, I might even believe it was good value. But because I don’t know, I’m suspicious, and suspect I’m being ripped off.’

    The people who I suspect frequent this site are at least degree-level educated, meaning that they have an IQ of ~115, I have a couple of serious scientific degrees from decent-enough-to-be-credible universities, so I must be in the ~120-130 range estimated as needed to get a masters degree. But, 50% of the general population are below this and even if intelligent enough to understand the corporate horsesh*t in the pretty catalogues, still don’t care to read it. So there’s a good reason for the providers to use this system that effectively weeds out thinkers and just grows the army of institutional work-scheme, pension fund suckers they can parasitise …..& over the course of time, they suck them dry.

    They’d probably welcome the loss of people who trouble them with expose’s on the net revealing their business model, so that they can concentrate on working the motherlode seam of innocent patsies instead, who don’t even know they’re in the loving hands of a closet tracker that charges active fees. Fools & their money are soon parted …..but until financial skills are taught early as mainstream education, lambs will be dipped, sheared & milked until the day they are silenced via their account balances hitting zero. Rip-off Britain never left.

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  2. Hargreaves Lansdown cap my SIPP charges at £200/pa because I’m careful and choose etfs. And that’s for their fabled customer service. Other providers offer SIPPs for £100/pa. I think you need to sort this out ASAP.

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  3. Fund managers might justify .2% for a tracker, 1% for active. Brokers do not for their bookkeeping. HL deserve £200 to keep my £500k safe, but not £5k

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  4. As we all probably know in the audience of the blog, 1% is outrageous when compared to the fees of your typical ETF, which basically does the same thing, probably more efficiently than an active fund.

    And of course they won’t explain it to you, because there is no reasonable justification these days to charge so much compared to the Vanguards et. al.

    If it were an option, I’d almost suggest to take the money elsewhere. I’m not familiar with the pension system but I assume you don’t have a choice?

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  5. Admin fees by rights should be fixed, not based on the fund’s value. But if they were, people with small pension pots would be disproportionately affected. You’re paying to subsidise the administration of the pots with small amounts in them.

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  6. Nothing has changed for decades….
    https://www.amazon.com/Where-Are-Customers-Yachts-Street/dp/0471770892

    My friend just transferred his DB pension into a private pensions. His “pot” was massive after 35 yrs, I mean massive. He was talking over £2m.
    He went with a company often in the Sunday times (SJP…) for epic charges 2% to 3% of the pot size just to do the transfer!!!

    Despite my protest to look around he didn’t care. I was upset for him.

    The week he turned 55 he bought a boat down south and a A.M. vantage 😉 though I suspect the advisor also bough lt a bigger boat and a Db11!!!

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    • I know of similar people. Anyone buying a boat has money outweighing sense on any measure. An Aston Martin, well, I could be tempted! But to give an advisor or provider 50k plus?and accepting that? I’d be throwing myself off the boat when I saw the bill.

      Liked by 1 person

      • I know. SJP according to the papers are often charging more. 5% then another 5% fee if you leave! Huge story in the Sunday times a few months back.

        His lofix was it was “free money”. He wasn’t expecting a windfall like that. 25% tax free withdrawal at 55 and all of a sudden there’s is an AM in the garage 😉

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      • If you have an adviser would suggest your fees are low. If you’re a DIY investor then could be high. The difference between advised and DIY is the risk associated and regulatory fees with DIY not suffering these associated charges. Regulatory fees are levied on percentage basis and can be increased part way through the year without too much warning. Many ETF funds are not as cheap as first thought. Regulation introduced in January mean that total disclosure of trading costs in addition to annual management fee will possibly mean up to 35% increase in disclosed costs. Although should still be lower than actively managed but the gap may be closing.

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  7. I can’t understand why you haven’t transferrer to a low cost SIPP, using the excellent info available at monevator, perhaps supplemented by questions to the helpful fools at lemonfool.co.uk. If you’ll be going into drawdown soon, you’ll need to look closely at drawdown fees before you choose a platform. If you don’t know how you’ll access your pension, there is (basic but independent and a good starting point) info at pensionwise. The only thing that might stop you transferring is if you have any guaranteed benefits (usually from older pensions). Or DB pensions of course, but iirc you are all DC?

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    • This pension is a DC one. I’ve been making a series of bad assumptions- I will be charged for transferring, I won’t be allowed to, I might lose a bonus, it’s way too much hassle. But to think I could save literally thousands of pounds for not too much work has me kicking myself over my inertia to date. (And clearly some bad advice on forums too, telling me I was being charged in line with the market standards. I probably didn’t give enough detail though.)

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  8. I think the FCA imposed a charge cap at 0.75% for new(ish) workplace pensions a while back

    NEST charge 0.3% (but 1.8% on contribs)

    So yes, 1% would seem a bit high

    As others say, for someone like yourself, a SIPP prob makes sense – gives you more opportunity to hammer down the costs?

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  9. Echoing other’s comment, yes, 1% is too much.
    You need to ditch the actively managed, high-fee, funds, and get low cost trackers that charge in the region of 0.1-0.2% P.A.
    Then, find a broker that offers the funds/ETFs you want, and gives the service you need, all at the right price, which for some of the low-cost brokers is in the region of £120-£150 P.A. for a SIPP – plenty of detail on Monevator’s broker comparison table.
    If you intend going into draw-down soon, then that’s obviously another, very important, consideration, as some brokers might be cheap to hold, but expensive when it comes time to access your money.

    I think you know all this, and maybe just find the thought of making the changes daunting.

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  10. You’re a bright enough fellow – give it time for the red mist to clear and then read again what the doc says. If you are paying a platform admin charge of 1% then you’re paying too much. End of. Move. If you want it pretty then go to Hargreaves, whose SIPP charges are here. You can do better than that, but you have to consider the costs of drawdown, which are low with HL – zero in my case.

    It’s not really fair to grouse at the platform for the fund fees, if your funds are too dear then swap ’em out for something cheaper! Take Back Control and all that…

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  11. Thanks for all the comments so far. I will be doing something about this, it’s just bloody laziness if I’m honest and a feeling that it’s probably the same everywhere in terms of charges. Clearly I’m wrong on that assumption.

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  12. Financial services expenses are something I’m obsessive about. I have 3 pension wrappers – a work GPPP and 2 SIPP’s to spread my wrapper risk. I only added the second SIPP once my pension wealth reached a significant sum.

    The GPPP steals plenty so to minimise the damage I periodically complete a partial transfer into one of my SIPP’s. This usually coincides with a transfer offer for a few extra £’s benefit. My experience is that the transfer is completed in a few days and it takes just a few minutes to do the ‘paperwork’.

    My SIPP’s are with YouInvest and Hargreaves Lansdown. I only buy direct REIT/Share holdings or ETF products in these platforms to minimise pension wrapper costs. This means my wrapper costs are respectively £100 and £200 annually.

    My total pension annual costs including both wrapper and products costs are currently running at 0.134%. On my £560k that leaves £4,860 more in my pocket when compared to your 1% ‘exorbitant’ costs.

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    • RIT – how careful are you when it comes to FX charges on purchasing/selling ETFs? I’m wondering what steps one may take to minimise such charges?

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      • Echoing the question: what are good resources to investigate the FX charges for ETFs? Monevator (while excellent in many ways and clear that we should all DYOR) isn’t comprehensive in the inital / exit fees or FX charges for ETFs.

        One thing that threw me is that even if an ETF is shown in GBP, it doesn’t guarantee that there isn’t an invisible currency fee hidden away.

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  13. However, if your 1% covers both the platform fee and the fund fees, then maybe it is not so unreasonable. HL’s fees for a SIPP containing actively managed funds (such as Fidelity GSS) will be 0.45% (or less if fund large) plus fund fees (0.95% for Fid GSS).

    Of course, these can me massively reduced as previous posters have said by using direct shares, ITs or ETFs.

    So best to find out the true cost of what you have now and then consider alternatives.

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    • Even including both platform and ‘fund’ fees it is still most definitely unreasonable. SHMD mentions he is nearing the LTA. There is no reason all in he couldn’t have total expenses somewhere between 0.1% and 0.15% with a little work including understanding how the platforms levy fees.

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      • If you want a platform with a set of truly actively managed funds, then 1% is not unreasonable to pay for that all in. If you are happy to go passive and use ETFs etc., then you can certainly reduce those costs substantially.

        A mix of active and passive often produces a better outcome than 100% passive.

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      • Do you have some data that shows on average active produces a better outcome than passive over a very long term? Let’s say 20 or 40 years which as private investors should be the timescales we’re thinking in. Then do you have some data that shows the average punter can pick these out performing actives over the under performing actives?

        Exhibit A. Wasn’t Mr Woodford up until pretty recently held in active high regard. He’s been great right up until the point he isn’t.

        I’ve never been able to find the evidence but have found passive outperforming active evidence so have decided passive is for me.

        Of course all this is just my opinion.

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  14. I have a mix of active and passive, but I’m not really a fan of active. The reason was that I sold up my US trackers just before Trump was elected, putting my funds into a managed account that had a heavy bias to US companies – but ones that hopefully could cope with however the election turned out. But I was effectively gambling, wasn’t I? Who knows what the future will bring, as Trump has proved. I’m now feeling that I should just put 75% of my pension into a passive, low cost global tracker and forget about the performance while trying to find the cheapest way to access the funds going forward.

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  15. Creating an asset allocation is in some sense a gamble. Even if one is totally passive, how much does one allocate to the various components of that passive portfolio (asset classes and geography)? That is subjective and thus a gamble.

    Investing is all about maximising gains while reducing risks relative to your needs. We will all have our own interpretations of what levels of risks are acceptable and what markets are worth investing in.

    I do use both, using active in more specialist areas where the FM has good experience, track record and where passive funds are not so readily available (e.g. Japanese Smaller Companies, or some long/short funds).

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  16. I know what you mean. It’s okay being a passive investor but, let’s be honest, it’s boring! You do all the reading and researching, agree with Warren Buffet, know what you should do and then tell yourself that it’s worth backing your own hunches. I suppose that’s partly why I’ve been punting on ITV 4 Racing this afternoon (and am thirty quid up!)

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  17. Don’t beat yourself up to much. Finding out the charges levied by DC schemes is soul-crushingly painful. The firms make it difficult to get the information and then they present it in a confusing and convoluted way. You are by no means the first to struggle to get to grips with the costs (I’ve suffered just the same). Now you’ve worked out you’re getting a bum deal, don’t be intimidated against doing something about it and finding a better deal.

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    • Thanks, I think the vast majority of people have no idea about the charges. As I say, I’m interested in this stuff, so I read through my statement and found what I’d been charged buried in the text. It wasn’t on the headline performance statement. I do get angry about it, but more at the companies than at myself.

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  18. You blog about personal finance and yet you’ve never bothered to really look at the charges being levied on your third biggest financial asset?

    I actually find that hard to believe

    Its been common knowledge in the online personal finance community for the best part of a decade that its pretty straightforward to construct a DIY index tracking SIPP with charges of 0.2-0.3% per annum

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    • Yup, I’m going to change it. The scary thing is that if I hadn’t posted the above and seen the replies, I’d have probably just let it roll. Why? Because of my belief that all the other big pension providers probably charged roughly the same, and managing your own SIPP sounds a bit risky and complicated. It’s so easy just to do nothing.

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  19. What surprised me the most was Fidelity at 0.4% Quite low?
    I use Aegon Flexible Personal Pension (via work) at 1.00% – but I get a 50% rebate on all new contributions. I still feel this is too high but for various boring reasons I’m staying with Aegon.

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  20. Get yourself over to monevator and look at the broker comparisons. AJ bell charges are 1%/year capped at 100 GBP, HL are 200 etc etc

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  21. Really good article and the problems you described are those faced by millions of savers. There is a slow move towards greater transparency and the FCA is helping with that but it won’t happen quickly. It’s hardly in the industry’s (majority) to lower their costs.

    We launched a year ago with the sole purpose of lowering costs and providing quality advice and management to those who are generally overlooked by industry. With a minimum investment of £1 we bring total cost, including product wrapper and portfolios and advice if you need it, at less than 0.55% per annum.

    There is little reason why the margins and costs are what they are – it is because the industry can. This will change.

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