The policy charges listed below are separated into three groups – implicit charges, explicit charges and exit charges. Different types of policy may have different combinations of these charges applying:
- Implicit charges are taken from the daily prices of units. These include Annual Management Charges (AMCs) and Investment Management Charges (IMCs).
- Explicit charges are taken from your policy value and can include charges such as policy fees and bid-offer spread.
- Exit charges are charges that may apply if you were to take your money earlier than you planned when you took your policy out.
Annual Management Charge
The charge made over the year by product providers to cover the expenses associated with administering your policy. Although quoted as an annual percentage figure, the charge is usually taken from the fund daily.
Investment Management Charges
Investment Management Charges (IMCs) are charges or expenses incurred when trading or maintaining the underlying investments, including taxes. Trading costs currently include such items as stamp duty and dealing commission, while administration costs primarily include investment management and custodian fees.
Performance fees
This is a fee paid to a fund manager, based on the performance of the fund they’re managing. It usually only applies if the fund performs above a predefined benchmark or target.
Bid-Offer Spread (charges on money paid into your policy)
The money you pay in buys units in your selected investment funds. You buy units at the offer price and sell them at the bid price. The price at which you buy units is normally higher than the price at which you sell. The difference between these prices is called the Bid-Offer Spread.
Policy fee
A monetary fee (for example, £2 per month) which is deducted from the policy value to cover administration costs.
Charge for switching funds
ReAssure allows customers to make up to twenty fund switches each year free of charge. A charge of £10 per switch is made for further switches. Customers who were with HSBC before ReAssure can make switches for free.
Initial units
In the case of some older policies, money paid in during a policy’s early years (usually the first two years) was used to buy initial units (sometimes called capital units). Initial units were designed to pay for policy set up and distribution costs. These units have little or no value if you take the money from your policy early, and are sometimes thought of as an exit charge. They do normally have a value if you die. If we show a figure called ‘value of units’ or ‘fund value’, as well as a lower ‘current value’ this would normally indicate that you have initial units on your policy.
Other penalties
Some products have a charge that’s taken from your policy value if you take your money earlier than you planned when you took out your policy. This is often a percentage of the total value, but can also be a fixed amount, and they may reduce as the policy gets closer to its maturity date.
Pension exit charge cap
If you’re a pension customer and you want to transfer to another provider, then you need to consider the effect that any exit charge has on your money. From your 55th birthday exit charges on all pensions are capped at 1% of the policy value. This 1% cap applies to all exit charges on your policy, so if you have a combination of exit penalties then the 1% cap applies to the total amount being deducted.
