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Law firm calls for IPAs to allow dilution levy

City law firm Eversheds is calling on the Government to review the single-charging structure of its proposed Individual Pension Account.

The firm believes that IPAs, which will invest in collective investments, including unit trusts and Oeics, should be allowed to charge a dilution levy to ensure fairness to unitholders.

The levy is applied when investors cash in their stake in a fund. It covers the fixed costs of dealing in the shares. The charges do not go to the fund manager but are added back into the fund.

But the IPA proposals only allow providers to apply single pricing. Eversheds says it is unlikely the Treasury will permit the dilution fee but says the FSA is conducting a review of the charging structure.

The FSA may consider what is called “swinging” single pricing, which takes into account whether a fund is expanding or contracting before deciding the charge.

Dilution levies are not allowed under Isas or stakeholder pensions. They are not always levied on normal trading of unit trusts or Oeics because most costs can be absorbed by a well-performing fund.

Eversheds solicitor Julian Brown says: “To investors, it seems to be a charge even though it is a payment into the fund pool. It is a question of balance, though.”

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