Pension scheme investments

Pension scheme investments

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Authorised pension scheme holds investments in pension funds. It seems strange to me that a pension scheme would itself invest in pension funds, and I am failing to see what the benefit is (either tax or otherwise) of investing in pension wrapped products - it seems like potentially there could be a disadvantage - ie the fees and returns on the underlying pension funds reflect the tax advantages offered, yet the investor (the authorised pension scheme) already benefits from these tax advantages? Am I missing something and / or has anyone else seen this type of set up before?

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By duncanedwards
30th Jun 2014 10:26

Are you sure ...

that's what's happening?

I can't see how the trustees of the "investee" scheme could be acting as fund manager for a separate scheme.  That would seem to go way beyond the likely establishing trust deed - if not pensions law more generally.

There are common investment arrangements for some large empoyers' schemes that, for whatever reasons, are unable to be merged.  That's not the same as one pension scheme investing in another.

Whether there are disadvantages depends would require a detailed analysis.  There might, for example, be some savings in 'bulk discounts' with third party service providers.

The "investee" scheme would be taxed on charges it levies for the provision of investment management services.  That kind of income would not, as far as I can see, be within the tax reliefs available.

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Replying to DJKL:
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By charlb
30th Jun 2014 10:45

As far as I can tell that is what is happening - no accounts, prospectus etc for the investee funds, only "factsheets" and statements, though I hasten to add that the trustees of the investor and the investee are completely separate - ie there is no relationship between them. However it just seems weird to me that an authorised pension scheme would itself invest in pension funds which appear to be marketed towards individual investors. The investor pension scheme is a small scheme set up for the directors (ten in total) of a private company.

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By Michael Beaver
30th Jun 2014 10:56

I would check the status of the destination again.

Because your client looks like a small pension fund, ordinarily they wouldn't be able to take advantage of economies of scale.  i.e. all their investments would ordinarily be at retail management fee rates.

There are 'wrap' or 'fund of funds' set ups out there that take money from small pension funds or even investment funds, pool them together in order to gain these efficiencies and lower the management fee charged on those funds ... whilst charging their own management fee, of course!

However, the combination of the two can often be lower than the pension funds going directly into managed funds with its limited resources on its own.

 

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Replying to Tax Dragon:
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By charlb
30th Jun 2014 11:32

Thanks Michael for your response. Just to check on what you mean by "check the status of the destination again" - you mean the status of the investee? Definitely a pension fund which appears to be marketed to individuals - ie tax relief on contributions and amounts to be withdrawn once reaching retirement age. In fact there are various investee pension funds with the whole portfolio being labelled a "retirement plan" offered by a well known wealth management company which has a variety of own name funds. Just doesn't seem to sit right with me.

 

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