Cost Comparison - Break-even point
ruthiebusybee
Member
Hi All
I'm doing a bit of digging work, an element of paraplanning that I love, but my brain has drawn am absolute blank this morning - help!
We're looking at the feasibility of moving a pension with a tiered penalty on it. Ceding scheme (I'll label as SJP) total declared annual charges are 1.918% pa and the receiving scheme (Let's call TOL) total charges are 1.745% pa.
The penalty on SJP is 6 , 5 , 4 , 3 , 2 , 1 over the firs six years. They are currently in year 2, about to go into year 3 for the majority of the fund (3 contributions, 1 and 2 reach anniversary in March and April, 3 isn't until November). Unfortunately SJP cannot supply a valuation broken down by contribution in order to assess as accurately as we would like.
I've been asked to find the optimum transfer point from a charges point of view, in terms of suffering the transfer penalty for the greater good of lower AMCs. I am armed only with a spreadsheet (love a good spreadsheet!) unless anyone knows of any other free software going.
The added complication in my mind is that of the 1.50% annual charge that SJP take (rest is "external management charges), they deduct 0.75% via unit price and the other 0.75% they deduct by deduction of units. To me the end result of deducting units is that is takes even more value from the plan, as those units aren't there to [hopefully] benefit from any future growth. Am I over thinking this element and complicating it more than necessary?
Thoughts?
Ruth Baker
Comments
Separate point but clients can often get these exits fees waived if pushed hard enough
I think this shows it's not beneficial until the penalty has expired.
@arongunningham - yeah that was my initial though too, just on a quick bit of mental math, but the adviser wants a bit more analysis and then the client can decide what level of penalty he would feel 'comfortable' with, in order to benefit from our ongoing advice and access to our fund prop.
I think perhaps I am over complicating it, and a few simple tables is all that is needed. Thanks for the push in a better direction!
@Yonkers420 that's an interesting thought......... I'm assuming we would need to push the clients down a complaint thought-line though and we're not keen to do that.
Ruth Baker