Neptune hits back at Miliband over ‘massive’ pension charges

Neptune has accused Labour leader Ed Miliband of inaccuracy in his comments on its UK Mid Cap fund, arguing the figures he used are incorrect and out of date.

The attack follows comments reported in The Times and The Guardian in which Miliband accused the pension industry of excessively high charges. The two newspapers reported Miliband as saying he is determined to tackle the ‘massive, massive issue of pension charges’, and cited the example of the Neptune UK Mid Cap fund, which was reported in November 2011 by Which? as having a 3.96 per cent charge.
Miliband reportedly said: “I am very worried about the scale of administration charges that people face. What you find in some parts of the industry – not all parts, clearly – is that people are facing not 0.5 per cent, which is the benchmark administration fee that we put forward in the government scheme when we were in government, but 4 per cent or 5 per cent.”
A statement from the fund manager says the fund is a retail investment fund and not a pension fund, as reportedly described by Miliband.
It also points out the fund’s performance is ranked first out of 290 IMA funds, with a return of 19.66 per cent, compared to an IMA sector average of 4.07 per cent.
Neptune argues the cited ‘charge’ of 3.96 per cent was in fact the total cost to investors in the fund, which has subsequently been reduced. This calculation is based on the fund’s Total Expense Ratio (TER) plus Portfolio Turnover Rate (PTR). The latter reflects the market costs of buying and selling shares for the portfolio, as opposed to being a source of revenue to the fund manager, and is typically higher for smaller funds.
A statement from Neptune says: “This Fund is currently £10m in size. Furthermore, in the current environment the level of management involved in dealing with volatile equity markets can lead to a variable and occasionally higher level of turnover. All of this activity is with the aim of protecting and growing our clients’ investments.
“As the Which? figure was published in November 2011, it uses an old capped TER of 2.5 per cent. Neptune now subsidises the fund further by capping the TER at 2 per cent in order to protect its investors. Neptune’s annual management charge (AMC) for the retail share class, which is a component of the TER, is 1.6 per cent. This charge reflects the active management approach and level of research input used on the Fund. “Thirdly, whilst the Fund invests predominantly in mid-cap UK companies, which is beneficial to the UK economy, the return to the Fund’s investors has been a total return of 17.38 per cent over the last twelve months compared to negative returns from both the Fund’s IMA peer group and its benchmark index, the FTSE 250. In addition to the one-year figure, the Fund has returned 88.16 per cent over three years and 123.15 per cent since its inception, making it one of the best performing funds in its sector over the long term.”
Otto Thoresen, director general, Association of British Insurers says: “It is absolutely wrong for Ed Miliband to imply that a 4 or 5 per cent pension charge is normal. Pension charges have been falling steadily for the last decade and are continuing to fall. In newly set up automatic enrolment schemes the average annual management charge of our members is 0.52 per cent. The average annual management charge for existing schemes is 0.77 per cent. For many other existing schemes, both large and small, charges can be lower than 0.3 per cent. Nobody in the pension industry would defend a charge of 5 per cent for a standard new pension and we ask Ed Miliband to write to us with details of the schemes that he is referring to.
“The pensions industry is absolutely committed to ensuring that charges are as low as possible and that customers understand what they are paying. We will continue to deliver further change but this type of misinformed attack does not reflect the considerable progress the industry has already made.
“This is a critical time for pension saving in this country as we face the challenge to make the automatic enrolment reform, introduced by the last Labour government, a success. Scaremongering about charges runs the risk of putting off many people from saving into a pension, which is critical for their financial future.”