As I continue what seems like my career-long attempt to understand pensions I keep coming across concepts I hadn't even thought of. Maybe someone can help clarify something for me :
Is there is standard (or even better - statutory) definition of terms like bid/offer spread, allocation rates, etc . . .
I have seen some posts (and pension documents sent to me) where there is mention of no bid/offer spread, but yet there is a non-100% allocation rate which hasn't been explicitly mentioned. To me the two things equate, so other than obfuscation, I don't see the purpose served by using both terms.
A pension in my previous company had this situation. In theory there was no bid/offer spread so if I contributed €100 in a month to my fund and the fund units were €20 at that time then I got 5 units added to my fund. In practice what was happening was that there was a 98.5% allocation rate which meant I got 4.x units instead because my €100 was only worth €98.50 by the time it got to actually purchase funds.
I now know to ask the pension sales people about allocation rates, and bid/offer spreads and annual fund management fees. Is there anything else I need to ask about ? When the previous company was with a broker (I think thats what they were termed - big company begining with M) we also paid a management fee to them. In theory this was to cover the cost of them 'advising' the scheme members, but in practice the level of advice was pretty poor (if judged solely by contact minutes). This fee was covered by the employer outside the scheme itself, but if this wasn't the case I'm pretty sure they were determined to recover it from the pension contributions.
So, back to the original question - is there a standard or statutory definition of these terms and a requirement for them to be stated clearly in end-uder documentation ? I have a feeling this is not the case as I think the pension industry lacks some of the clarity that has been brought to other financial areas such as lending where things *must* be spelled out or the contract is questionable.
z
Is there is standard (or even better - statutory) definition of terms like bid/offer spread, allocation rates, etc . . .
I have seen some posts (and pension documents sent to me) where there is mention of no bid/offer spread, but yet there is a non-100% allocation rate which hasn't been explicitly mentioned. To me the two things equate, so other than obfuscation, I don't see the purpose served by using both terms.
A pension in my previous company had this situation. In theory there was no bid/offer spread so if I contributed €100 in a month to my fund and the fund units were €20 at that time then I got 5 units added to my fund. In practice what was happening was that there was a 98.5% allocation rate which meant I got 4.x units instead because my €100 was only worth €98.50 by the time it got to actually purchase funds.
I now know to ask the pension sales people about allocation rates, and bid/offer spreads and annual fund management fees. Is there anything else I need to ask about ? When the previous company was with a broker (I think thats what they were termed - big company begining with M) we also paid a management fee to them. In theory this was to cover the cost of them 'advising' the scheme members, but in practice the level of advice was pretty poor (if judged solely by contact minutes). This fee was covered by the employer outside the scheme itself, but if this wasn't the case I'm pretty sure they were determined to recover it from the pension contributions.
So, back to the original question - is there a standard or statutory definition of these terms and a requirement for them to be stated clearly in end-uder documentation ? I have a feeling this is not the case as I think the pension industry lacks some of the clarity that has been brought to other financial areas such as lending where things *must* be spelled out or the contract is questionable.
z