How do charges affect my retirement annuity plan?

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The contributions you make to your pension plan buy units in your chosen funds. During the first year of investment, your regular contributions buy initial units. From the second year onwards the contributions buy accumulation units. If you choose to increase your contributions, the increased amount would also buy initial units over the first year, then accumulation units from year two.

Under this type of product we automatically switch the initial units into accumulation units at age 60.

There are three main charges that make up the charging structure on your pension plan:

Annual management charge

There is a standard 1% annual management charge (AMC) incorporated into our daily fund prices. Find out more about AMC.

Initial units are subject to an additional 7% annual charge, on top of the standard 1% AMC, which is also incorporated into our daily fund prices for initial units.

Bid/offer spread

Units are bought using the offer price, and are subsequently valued (or sold) using the bid price. The offer price is 5% greater than the bid price. So, if you purchased £100 of units (before any allocation rate is applied), the subsequent value of those units on the same day would be £95.

Allocation rate

This is the rate that is applied to your contributions and is normally shown as a percentage. Under this type of product, the allocation rate varies the closer you get to your retirement date.

Contribution £100.00
Allocation rate 105%
Offer price £10.00
Bid price £9.50
Units bought calculation
Contribution * Allocation rate / Offer price
£100 * 105% / £10 = 10.5 units
Valuation calculation
Units * bid price
10.5 * £9.50 = £99.75

The examples below show how the charges on your retirement annuity plan may apply on a yearly basis. The figures shown do not reflect the actual charges but show at a high level how the charges operate based on some hypothetical fund values. If you’ve only paid a single premium in to the plan then the initial unit charge won’t apply. Please select the section which reflects your current age and whether you're making contributions.

Your plan is made up of initial and accumulation units. 

The allocation rate used in the example is for illustrative purposes. Your allocation rate will depend on your retirement date and the value of your current contributions.

 

Initial units annual management charge (AMC) 8.00%
Accumulation units annual management charge (AMC) 1.00%
Allocation rate 101.00%
Assumed regular contribution each month £100.00
Bid/offer spread 5.00%
Initial unit value Accumulation
unit value
AMC Allocation impact Bid/offer
spread impact
Total
£1,000 £25,000 -£330 £12 -£60 -£378
£2,000 £50,000 -£660 £12 -£60 -£708
£3,000 £75,000 -£990 £12 -£60 -£1,038
£4,000 £100,000 -£1,320 £12 -£60 -£1,368
Initial units annual management charge (AMC) 8.00%
Accumulation units annual management charge (AMC) 1.00%
Allocation rate N/A
Assumed regular contribution each month £0.00
Bid/offer spread 5.00%
Initial unit value Accumulation
unit value
AMC Allocation impact Bid/offer
spread impact
Total
£1,000 £5,000 -£130 £0 £0 -£130
£2,000 £8,000 -£240 £0 £0 -£240
£3,000 £10,000 -£340 £0 £0 -£340
£4,000 £12,000 -£440 £0 £0 -£440

The allocation rate used in the example is for illustrative purposes. Your allocation rate will depend on your retirement date and the value of your current contributions.

Accumulation units annual management charge (AMC) 1.00%
Allocation rate 101.00%
Assumed regular contribution each month £100.00
Bid/offer spread 5.00%
Fund value bonus1 0.25%
Accumulation
unit value
AMC Allocation impact Bid/offer
spread impact
Fund value
bonus1
Total
£26,000 -£260 £12 -£60 £65 -£243
£52,000 -£520 £12 -£60 £130 -£438
£78,000 -£780 £12 -£60 £195 -£633
£104,000 -£1,040 £12 -£60 £260 -£828

A fund value bonus of 0.25% is added to the total value of your policy for each complete year after you’ve reached 60 up until 75. This bonus won’t be included in the valuation shown on your annual renewal notice.

Accumulation units annual management charge (AMC) 1.00%
Allocation rate N/A
Assumed regular contribution each month £0.00
Bid/offer spread 5.00%
Fund value bonus1 0.25%
Accumulation
unit value
AMC Allocation
impact
Bid/offer
spread impact
Fund value
bonus1
Total
£26,000 -£260 £0 £0 £65 -£195
£52,000 -£520 £0 £0 £130 -£390
£78,000 -£780 £0 £0 £195 -£585
£104,000 -£1,040 £0 £0 £260 -£780

A fund value bonus of 0.25% is added to the total value of your policy for each complete year after you’ve reached 60 up until 75. This bonus won’t be included in the valuation shown on your annual renewal notice.

For more information

The examples shown above are for illustrative purposes only. If you have any queries or would like to know more about how this applies to your pension plan, please contact us.