Every workplace pension scheme charges members for looking after their money. You might hear this called an ‘annual management charge’, ‘management charge’ or ‘AMC’ for short.
At The People’s Pension, we reduce the rate we charge members as their savings grow. Our charging structure is made up of 3 elements: an annual charge, a management charge based on the value of the member’s pension pot each year and applied on a daily basis, and a rebate on the management charge (depending on how much is in the member’s pot).
Chair’s annual governance statement on member costs and charges…
Steve Delo, Chair of The People’s Pension Trustee, gives an annual governance statement each year. The section about charges and transaction costs from his most recent statement (for year ending 31 March 2021) is included below.
The Trustee is required to set out the on-going charges borne by members in this statement, which are annual fund management charges plus any additional fund expenses, such as custody costs, but excluding transaction costs.
To keep things simple for our members, the Trustee and Administrator refer to this as the member annual management charge.
It is made up of 3 elements:
An annual charge of £2.50 for all members.
A 0.5% management charge levied on a member’s pot each year deducted automatically through a reduction in the unit price of the fund(s) that the member’s invested in.
A rebate on the management charge. This depends on the member’s pot size and they’ll receive a rebate of between 0.1% on savings over £3,000 and 0.3% on savings over £50,000. This is designed to encourage members to stick with retirement saving.
The Trustee confirms that the Scheme’s member annual management charge is comfortably within the charge cap set out by government for schemes with combination charges. The Scheme is permitted to charge a maximum of £10.00 or less per annum as a flat fee charge as well as a maximum percentage of funds under management rate (%) of 0.6%.
Considering the breadth and quality of the Scheme’s core service elements (investment, administration, communications, governance), the Trustee is satisfied that the costs and charges are appropriate for the Scheme both as a whole and when compared to other options in the market. To find out why the Trustee believes the Scheme represents good value for members, read the ‘value for members’ section of the Chair’s annual governance statement.
The Trustee reviews the transaction costs associated with the investment funds used by the Scheme at least annually, and most recently at the 5 August 2021 Trustee Investment Committee meeting. Transaction costs are a component of the overall costs borne by members, as they have the effect of reducing the net investment returns of the funds.
Transaction costs are incurred by pension schemes in 2 ways. Firstly, a fund manager will trade in markets to invest money flowing into or out of a fund (when scheme members contribute to or leave a fund). Secondly, they will implement investment decisions in the course of the day-to-day management to achieve the fund’s objectives.
Transaction costs can be broadly broken down into explicit and implicit costs. Explicit costs are observable and, where the costs are incurred, an invoice could be generated. Examples include brokerage fees, stamp duty and custodian fees, and foreign exchange levies.
Implicit costs cannot be directly observed and cannot be invoiced. These include bid ask / offer spreads, implementation shortfall (the difference between the decision price and the execution price of a trade) and market impact (the change in the price of a security caused by the trade). Implicit costs will use a `slippage cost’ methodology to calculate the market impact of trading. This method calculates the trading cost by comparing the price at which the transaction was actually executed with the price when the order to transact entered the market. Implicit costs can be positive or negative depending upon whether market movements were favourable.
The average transaction costs over the 5 years to 31 March 2021 are shown in the table below. The transaction cost data was provided by the Scheme’s investment manager, State Street Global Advisors (SSGA).
Default arrangement: charges and transaction costs
The Scheme’s default arrangement is used by 98.78% of the membership (as at 31 March 2021).
Global Investments (up to 85% shares) Fund*
*These funds are also available as self-select options.
Self-select investment options: charges and transaction costs
Global Investments (up to 60% shares) Fund
Global Investments (up to 100% shares) Fund
The Annuity Fund is based on the average of the last 4 years as the fund launched in 2016.
Illustration of charges and transaction costs
Illustrative examples of the effect of the management charge of 0.5%, the £2.50 annual charge and the transaction costs for the ‘balanced’ investment profile (the Scheme default option) are shown in the table below.
The illustrations have been prepared in accordance with the Department for Work and Pensions’ statutory guidance on “Reporting of costs, charges and other information: guidance for trustees and managers of relevant occupational pension schemes” on the projection of an example member’s pension savings.
Years in scheme
Pot value before costs and charge
Pot value after costs and charge deducted
to age 68
The ‘balanced’ investment profile, consists of the Global Investments (up to 85%) Shares Fund (projected The ‘Balanced’ investment profile, consists of the Global Investment (up to 85%) Shares Fund (projected growth rate 3.0%), gradually switching into the Pre-Retirement Fund (projected growth rate 1.5%) in the last 15 years.
As each member has a different amount of savings within the Scheme and the amount of any future investment returns and future costs and charges cannot be known in advance, the Trustee has had to make a number of assumptions about what these might be. The assumptions are explained below:
Projected pension pot values are shown in today’s terms, and do not need to be reduced further for the effect of future inflation.
The illustration does not indicate the likely variance and volatility in the possible outcomes from each fund.
Starting pot size is assumed to be £0 unless otherwise stated.
Contributions are assumed to be £135 per month from age 22 to 68 and increase each year in line with inflation (2.5%) (average monthly contribution was £137 at 31 March 2021).
Values are estimates and not guaranteed.
Costs include transaction costs.
Charges include the 0.5% management charge, the £2.50 annual charge, and any rebates due on the management charge. Find out more about our member annual management charge.
Inflation is assumed to be 2.5% per year.
No allowance for active management has been made.
Projections of other funds
See the full details of the Scheme transaction costs, and projections for other funds available in the Scheme, on our page about transaction costs…
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