Do pension plans still charge front end fees?
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Seems like a bad idea to get a plan where everyone gets paid before they perform.
chrissiet
1 year ago
Expert Financial Adviser Answer
Darren Smith
answered 1 year ago
with most pensions and indeed investments of any type, the cost of investing is often priced into the value of the investment fund.
pensions are not front end loaded nowadays like they were 20 or more years ago.
do bear in mind though that if you are paying an IFA for their advice on how to create your pension or investment that their work is the implementation of the advice and the advice process and not the performance of the actual investment.
your IFA will expect to be paid on delivery of the advice to you, this could be by invoicing a fee to you or deducting a cost from your pension fund.
do bear this in mind when you are reviewing costs - which is always a good thing to do - but consider what are you paying for and are you getting the service that you thought/were promised.
if you are, the costs are justifiable, if you are not getting the service you expect then you have cause to consider your options but dont "cut off your nose to spite your face" by assuming that charges are always unfair.
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pensions are not front end loaded nowadays like they were 20 or more years ago.
do bear in mind though that if you are paying an IFA for their advice on how to create your pension or investment that their work is the implementation of the advice and the advice process and not the performance of the actual investment.
your IFA will expect to be paid on delivery of the advice to you, this could be by invoicing a fee to you or deducting a cost from your pension fund.
do bear this in mind when you are reviewing costs - which is always a good thing to do - but consider what are you paying for and are you getting the service that you thought/were promised.
if you are, the costs are justifiable, if you are not getting the service you expect then you have cause to consider your options but dont "cut off your nose to spite your face" by assuming that charges are always unfair.
Expert Financial Adviser Answer
Dr David Carter FPFS
answered 1 year ago
It used to be the case - and not so long ago - that only a very small percentage, if any, of the regular contributions went into the planholder's fund. The rest was used to create profits, meet the charges of setting up the plan, pay commissions and so on. You could pay into the plan for a couple of years and stop for one reason or another, and your plan would be worthless. What a disgraceful situation that was.
Now such plans are a thing of the past and it would indeed be shocking if any did exist. Whilst there is no initial charge, though, there will normally be a regular (very modest) fee for having the pension itself, and every contribution will buy units in a fund. The purchase of each unit will cost perhaps 5% more than the value if the unit is sold (eg to purchase an annuity), much like the difference between the cost of buying foreign currency and what you will get back if you sell it back to the travel agent at the end of your holiday.
This is a very general answer, and each pension will have its own charging structure, as well as there perhaps being other charges for advice and management of your pension plan.
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Now such plans are a thing of the past and it would indeed be shocking if any did exist. Whilst there is no initial charge, though, there will normally be a regular (very modest) fee for having the pension itself, and every contribution will buy units in a fund. The purchase of each unit will cost perhaps 5% more than the value if the unit is sold (eg to purchase an annuity), much like the difference between the cost of buying foreign currency and what you will get back if you sell it back to the travel agent at the end of your holiday.
This is a very general answer, and each pension will have its own charging structure, as well as there perhaps being other charges for advice and management of your pension plan.
Expert Financial Adviser Answer
Paul Ross DipPFS CII(MP&ER)
answered 1 year ago
As David and Darren have mentioned, these are effectively a thing of the past, "mosting pre 2001 plans", and most pension providers will probably increase the annual management charges by a small margin for the first 5 years to pay for advice given.
I have seen some shocking plans where there has been a 5% charge everytime you pay a contribution, policy fees, annual management fees, fees for switching and one provider charges a marketing fee (???) - a very strange one.
However, as mentioned, in 2001, things became simpler with the birth of stakeholder pensions and every provider had to drive down costs to compete in the market and satisfy the regulator
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I have seen some shocking plans where there has been a 5% charge everytime you pay a contribution, policy fees, annual management fees, fees for switching and one provider charges a marketing fee (???) - a very strange one.
However, as mentioned, in 2001, things became simpler with the birth of stakeholder pensions and every provider had to drive down costs to compete in the market and satisfy the regulator
Expert Financial Adviser Answer
John Stirling
answered 1 year ago
There are still plenty of different charging structures about, so you still need to check out which works for you, it isn't just the total cost which is important, but also the 'shape' - sometimes having a bias towards the start works better, sometimes having charges more levelly applied throughout life works better.
If you are using an adviser, then have an open and frank discussion about the features you value, and they will help achieve your objectives in terms of charging structures as well as plan type.
Just as an aside - you mention paying before performance as a bad thing, well that depends on what you are paying for - if the advice then that's been performed, if on the other hand you are paying for investment performance then it is perfectly sensible for this to be paid for as delivered (or in arrears), but beware as some performance fees are pretty high, so make sure you are prepared to accept what you ask for.
report abuse
If you are using an adviser, then have an open and frank discussion about the features you value, and they will help achieve your objectives in terms of charging structures as well as plan type.
Just as an aside - you mention paying before performance as a bad thing, well that depends on what you are paying for - if the advice then that's been performed, if on the other hand you are paying for investment performance then it is perfectly sensible for this to be paid for as delivered (or in arrears), but beware as some performance fees are pretty high, so make sure you are prepared to accept what you ask for.
