Switch my Skandia pension?
|Retirement | Investment Choice
Asked by GAV50, submitted
20 November 2010.
I have a personal pension (PP2) of about £42,000 with Skandia taken out in 1994 with a single premium. Skandia makes an admin charge of .75% per year over and above the underlying annual fund management charge. However, Skandia also attributes a loyalty bonus of 1% for every 5 years the contributions are held. So, the Skandia admin charge is effectively lowered by 0.2% a year to 0.55%. It also makes a maintenance charge of £45 per year.
I will probably draw the pension in about 10 years time and am considering transferring the pension to Skandia's investment solutions collective retirement account (CRA) for the duration. This has a similar maintenance charge (c.£52 a year), but no administrative charge, thus saving 0.55% p.a.. There are no penalties for the internal transfer and I would also keep any loyalty bonus accumulated. So, at first sight, it seems an attractive option, especially given that it has a greater choice of funds.
However, when I look at the list of funds for each product, the annual charge on the individual funds is frequently lower for the PP2 than for the CRA, e.g. Perpetual High Income 1.3% vs 1.5%. Aberdeen Emerging Markets 1.3% vs 1.75%. In addition, the PP2 fund management charge is shown as a TER, whereas the CRA shows an AMC. So, although I can't make an exact comparison, it seems that the charges may, in some instances, be lower with my current PP2.
Then again, if I look at the 3 year performance of the Perpetual fund, the CRA has returned 38.42% vs the PP2's 36.32%; and the 3 year performance on the Aberdeen Emerging Markets is virtually identical. Given that these figures are before the 0.55% admin charge on the PP2, then the CRA is looking cheaper again.
Is there any way to sort out whether it is best to stick with the PP2 or move to the CRA?
PS I have only recently discovered your website and find it comprehensive, clear and full of good advice. Thank you!
Answered by Justin on 22 November 2010
The comparison you've made is sensible and as your examples show it looks like six of one and half a dozen of the other.
Perhaps start by gauging whether you're more likely to buy an annuity with the pension fund in 10 years time or instead leave the fund invested and draw an income. If the latter then fund choice could be more important as the money is likely to remain invested well beyond 10 years. Plus, even a small cost saving via the Collective Retirement Account (CRA) would start to make a difference longer term.
You're right that you need to compare total expense ratios (TERs) to ensure an accurate comparison. The Skandia CRA fund list I've just looked at (here) shows an 'Add Fund Expenses' column, simply add these to the annual management charge to get the TER. You can then more accurately compare the funds you're considering.
As for the variation in performance data for the same fund held in each pension plan there doesn't seem to be much rhyme or reason as to why, assuming both sets of figures exclude initial charges. Annual fund charges (the TER) should obviously account for the difference, but this doesn't seem to add up based on your examples. Nevertheless, as the CRA appears to fare better, even before the 0.55% admin charge is deducted from the personal pension (PP2), it would seem to have the upper hand.
If you're not using a financial adviser then another factor in the CRA's favour is the possibility of getting a trail commission rebate via a discount broker. Most funds on the platform pay annual trail commission, typically 0.5%. Discount broker Club Finance charges 0.1% a year in return for re-investing all trail commissions, which could potentially save you around 0.4% a year.
And even if you don't use a discount broker CRA has the potential advantage of including some low cost tracker funds (especially those managed by Blackrock).
But while cost is important, the bigger decision is how to successfully invest your pension fund. If you plan to buy an annuity in 10 years time then try to progressively reduce risk as retirement approaches - you don't want any market crashes to impair your retirement prospects. Drawing an income from your pension should give you greater investment freedom (because you'll be invested for longer), but it's still important to bear in mind how much risk you're comfortable taking and the level of income you'll eventually need to draw, then choose funds accordingly.
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Readers' Comments (2) - To post a comment please register or login
Comment by GAV50 at 11:33am on 30 Nov 2010:
Many thanks for your response and the link to the Funds list. All points noted.
Just to follow up on a couple of things: I called Skandia to see if I could find out the reason for the discrepancy in the performance figures. The CRA team could only tell me how their own charges were calculated (not those of the PP team) and vice-versa. However, the PP team indicated that they used mirror funds, rather than the OEICs themselves, so that could be the explanation.
I contacted Club Finance about a transfer but, unfortunately, as I am French resident, they are not authorised under MiFID to do it. However, you are right that the Blackrock trackers may make it attractive for me to do it direct with Skandia, anyway.
Comment by justin at 6:56pm on 30 Nov 2010:
You're welcome, hope it works out well.