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Charge chaos as firms face busting cap

With stakeholder launching this week, the issue has forced Legal & General to promise it will dip into its own pockets to meet charges in excess of 1 per cent that are expected to arise if higher-charging external funds outperform lower-charging options.

Royal & Sun Alliance says the issue is one of the key reasons why it is suspending the option of external funds in its stakeholder.

Website chief executive Michael Lockyer says the problem arises because many companies have set a fixed charge regardless of the differing costs of external links.

Life offices are left with no room for manoeuvre if policyholders invest in higher-risk and higher-charging funds, and neglect lower-charging funds which average out the charges to below the cap.

L&G is gambling on investors opting for lower-risk and lower-charging funds in the early non-profitable years of their schemes as funds under management grow and the annual management charge drops.

Other big names committed to offering external managers within 1 per cent are Norwich Union, Scottish Amicable and Scottish Mutual but they have put in place measures to protect themselves from busting the cap.

L&G director of retail pensions Randle Williams says: “We decided to give the extra for free as it is clearer for customers to understand.”

R&SA asset accumulation leader Mark Birks says: “We are not clear how the costs of different funds are amalgamated under the 1 per cent cap when different funds cost varying amounts to manage. The customer needs to be clear how they are being charged for these.”

Skandia pension and multifunds manager Peter Jordan says: “If this means that the income provided by stakeholder is not covering costs, break-even point becomes meaningless as providers face making no money at all.” 


Exeter Investment Group – UK Balanced Portfolio

Thursday, 5 April 2001Type: Unit trust.Aim: Income and growth by investing in the equity income fund, zero preference fund and capital growth fund.Minimum investment: Lump sum £1,500.Investment split: Equity income fund 50 per cent, zero preference fund 25 per cent, capital growth fund 25 per cent.Yield: 2.74 per cent.Isa link: Yes.Pep transfers: Yes.Charges: Initial 5 […]

NU goes green for the future

Lynch points to the range of funds available, and the reputation of the fund management house, while Henry says: “The desire to help preserve the world is a very good feature, especially as this is a growing market which should produce very good financial returns in the long term.”Flowers says: “This product offers a new […]

Isas feel February chill

Fund managers&#39 worst expectations were confirmed this week as Autif figures revealed February Isa sales down by 37 per cent on last year.Net Isa sales plummeted to £646.8m from £1,029.3m in the same month last year but sales were narrowly up on January&#39s figure of £517m.A combination of repurchases and poorly performing markets have seen […]

Advice dilemma as ministers differ

The pension industry is pressing the Treasury and DSS to clarify if advice is needed for stakeholder, with senior ministers adopting apparently contradictory positions. IFAs and providers say the Government must clarify the situation this week as stakeholder launches or risk leaving consumers in the dark. Social Security Secretary Alistair Darling is on the record […]

Inheritance tax when it is relevant

Neil Jones is Technical Support Manager with Canada Life’s ican Technical Services Team. Canada Life offers a range of wealth management solutions, including retirement income planning, estate planning and investment solutions from a choice of jurisdictions, including the UK, Isle of Man and Republic of Ireland. A trust can offer significant advantages when an individual is […]


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