What questions should clients be asking their advisers about pension charges following recent media debate?
Peter Carter is product marketing director at MetLife
Charges are clearly very important when assessing pension funds and the media and political debate has helped highlight the issue. The focus tends to be on older-style contracts where annual charges can be as much as 4% while in general the industry has cut fees.
Advisers who have established processes will explain charges and their potential effect when they make recommendations and if they do not clients should definitely ask.
However charges are not the be all and end all and clients should be asking about more than just the charges. The question should be whether the charges are value for money.
The biggest challenges for clients currently are volatility and the low level of annuity rates when they turn their fund into an income. Clients are increasingly looking for peace of mind and certainty. If they can achieve that at an effective and competitive cost advisers will have delivered a valuable service.
Brian Davidson is pensions product manager at Alliance Trust Savings
When it comes to charges it is key that a client understands the charges that apply to their pension. If a client has a large fund value they may want to ask their adviser whether or not their product / platform provider charges on a percentage or flat rate basis.
Clearly the higher the value the better value a flat fee structure is likely to be. Some platforms / product providers will operate either a bundled or unbundled charging structure. A bundled charging structure often means that both the platform/product provider and the adviser are remunerated from annual management charge of the funds chosen.
This can make it difficult to ascertain how much a customer is paying and what they are paying for. The market is moving towards unbundled charging structures where a customer would clearly be able to see the charges that apply for the services of their platform/ product provider, their adviser and the investments chosen.
Iain Herbertson is managing director of City Trustees
Clients should be asking for easy to understand charges, displayed in a transparent manner so they fully understand charging both now and with any future transactions. They should also ask if there are any less obvious fees, such as retention of fund rebates or banking commissions.
Product suitability is essential and clients should have the correct pension offering the relevant degree of investment choice and flexibility. If a true SIPP is required for more sophisticated investments, then a transactional-based charging structure is more likely to be appropriate than a fund-based charging structure.
Clients should ascertain what level of service they are purchasing for the fees being paid - is it a bespoke service with a dedicated administrator, or less personal approach?
Fees must be realistic and able to support the level of service as well as supporting a robust business for their pension.
Greg Kingston is head of marketing at Suffolk Life
Clients with good relationships with their advisers will already have confidence they're being well looked after.
I'm very surprised that the wider benefit of SIPPs hasn't yet been raised in this debate. Of all the pensions out there, SIPPs have the most obvious benefit of being able to transparently differentiate the costs of the pension itself.
The client can see the cost of their pension, the cost of the investments within it, and the cost of the advice. Then a good provider can show accurately the reduction in yield.
It is the clients without advisers that really need to start asking questions. They can start with their existing pension provider and then seek advice. I just hope that advisers are not put off recommending perfectly justifiable pension transfers in the face of ongoing FSA scrutiny.
Billy Mackay is marketing director at AJ Bell
A great deal of coverage has focused on the quality and nature of the way charges are disclosed. Some of this has been fair and some of it not.
There remains billions of pounds worth of assets in old style plans.
It's hard to forget the insured plans of the 80s and 90s and the penalties that applied on stopping contributions and transferring out. It is important that we don't get drawn into believing that all pension charges are too high. This fosters a belief that all pensions, and to an extent all financial products, must be rotten. They are not.
A simple and clear analysis that outlines all product, investment and transaction charges that apply through the lifecycle of the product is what most pension investors would like. However, it is worth noting that many of the more modern pension products already provide this type of information and that's why advisers tend to already favour them.
Ian Naismith is head of pensions market development at Scottish Widows
The most important consideration on charges is value for money, and it is essential that clients understand how much they are paying and what they get for it. Too often the debate on charges equates low cost with good value, whereas many clients are very happy to pay a bit more to get greater flexibility or additional services.
So, alongside clear disclosure of charges and costs, the key question is "What am I getting from this pension that justifies higher charges and costs than I would pay for a basic plan with a simple default investment option?"
Answering that question will help the client to understand what they are buying, and also to appreciate the value of the advice given.
Simon Nicol is pensions director at Broadstone Pensions and Investments
Clients can ask all the questions they want about costs but the fact of the matter is few, if any, advisers are able to quantify all the charges associated with a pension contract. Until a new code of conduct is in place which forces providers to identify the additional costs this position will remain.
If reports are correct that these additional costs can double the apparent annual management charge then it behoves the industry to get its house in order. With the industry embarking on auto-enrolment a steady drip of ‘rip off' stories is not helpful to the success of this worthwhile project.
Clients should insist advisers put pressure on the industry for cost transparency which will help the industry to claw back some sense of credibility and individuals to regain some trust in pensions.
Stan Russell is a pensions business development manager at Prudential
The latest accusations to be levelled at the industry may leave consumers nervous about their choices. However, advisers should seize on this as an opportunity to offer their clients peace of mind by making the right product and investment choices for them - and communicating these effectively.
Helped by the advent of auto-enrolment, advisers need to build on improved levels of engagement. The RDR will, of course, also make the advice process more transparent and this will often help with client dialogue.
People wouldn't buy a house without having a survey first and the same attitude must apply to pensions. How much does it cost? How much do we pay professional service providers? What are the drawbacks? The mark of a good adviser will be to pre-empt these questions and answer them upfront, unprompted, in a transparent way.
Only a thorough examination of the existing arrangement will lead to an informed decision being made.
However, charges are only part of the picture. Ultimately performance ‘net of charges' will determine the effectiveness of the solution.
Fiona Tait is business development manager at Scottish Life
Make sure you know who is taking charges from your plan:
1. How does the provider cover its administrative costs?
2. How will the investment charges be met, what impact will this have on my pension plan?
3. How will you (the adviser) charge for your services, what impact will this have on my pension plan?
Find out when charges will be taken:
4. Which charges will be deducted up front?
5. Which charges are expressed as a fixed amount?
6. Which charges are expressed as a percentage of the contribution/fund value?
Make sure you know what can change:
7. Which charges are dependent on the changes which I make or are made to my plan?
8. Which charges could increase over time, and by how much?
9. What facilities could I add to my pension and how are these options charged?
Put the charges into context:
10. Can you show me the total effect of charges on my eventual fund?
Andy Zanelli is head of retirement planning at AXA Wealth
Clients should be asking their advisers to explain the charges levied for their pension plan, broken down between the actual pension policy costs and the cost of the chosen investments. They should also make sure they are aware of the level of remuneration their advisers are receiving from the plan.
For me a key question would be around value - do the fund(s) or assets forming the investments of the scheme still represent good value and a reasonable level of charging when compared to their peers?
Are they providing better, consistent and expected performance than other, perhaps cheaper, funds in the sector or peer group? If not, should they consider switching funds?
The other aspect to consider is the pension wrapper itself. Look at the features and options of the policy, both the ones being used presently and those that may be required and consider if the charges still represent value for money.
The most critical aspect in all of this is to find out what individuals would like to achieve in retirement, when this is likely to be realistic and what level of financial aspiration they have, and then tailor their investment choices accordingly.
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