If you do not know what they mean you could lose thousands of pounds. We hope to simplify the jargon and help give you a better understanding of what the most common and costliest are and mean…
The Annual Management Charge (AMC) is the fixed management fee paid to the fund manager for managing the investment fund. This is a percentage of your holdings in the fund which is often within the range of 0.07 per cent to 1.75 per cent. This plus any additional fund expenses or charges make up the Total Expense Ratio (TER).
A larger AMC isn’t always a negative, all funds have a different overall performance and some of the more experienced, successful fund managers will charge more as their returns are likely to be larger.
The Annual Percentage Rate (APR) is the total amount of interest on mortgages, credit cards and loans. The amount that you’ll pay annually (averaged over the full term of the loan). A lower APR translates to lower monthly payments.
Beware, many advertisements offering APR on credit cards and loans are not necessarily the one you will get. Lenders will offer the headline rate to 51 per cent of successful applicants while the rest could pay more.
You are more likely to face a higher APR if you have a poor credit rating. To watch our video on APR click here
The Early Repayment Charge (ERC) is related to mortgages. If you repay your mortgage early or make an overpayment that’s more than your overpayment allowance, an Early Repayment Charge may be payable.
A penalty for switching deals early can be as high as 5 per cent, the details are often tucked away in your mortgage paperwork and can be easy to miss.
You might also incur an ERC if you overpay more than 10 per cent of your mortgage each year, depending on the lender and deal.
A Guaranteed Annuity Rate (GAR) can apply to a Pension. If your pension has a Guaranteed Annuity Rate, it may pay a higher level of annuity income than you could get on the open market.
Some of the things you should look for when deciding whether to take up the guaranteed annuity rate are:
- When can the rate be taken? Some pension schemes only offer the rate at the scheme’s selected retirement date, not if you draw retirement benefits before or after this;
- If you want to include a continuing income for a nominated dependant, such as a spouse, does the GAR still apply?
- Does the GAR apply if you want to include escalation, so that your income increases each year to offset the effects of inflation?
A Market Value Adjustment (MVA) can be applied to a number of different investments such as, a Pension and an Annuity. If your pension is invested in a “with-profits” fund and you take your money before your selected retirement age the company may apply a Market Value Adjustment.
The reason for MVAs is to protect the insurance company and other investors against investment losses incurred by early withdrawals.
The Open Market Option (OMO) was introduced as part of the 1975 United Kingdom Finance Act and allows someone approaching retirement to ‘shop around’ for a number of options to convert their pension pot into an annuity, rather than simply taking the default rate offered by their pension provider.
You could get a much larger income on the open market so should therefore never simply accept the offer from your pension company without comparing other options/providers first. This is a good time to talk to an Independent Financial Adviser who will explain the different options available at retirement.
If you have any questions on this blog or any other financial matter please leave a comment below on contact Savvy directly.