"At the end of the year, promotional campaigns are launched by investment funds to encourage Poles to participate in IKZE and IKE. However, too high commission in these programmes may result in the final loss of tax benefits of our savings and a significant part of the accumulated capital," writes Marcin Lipka, Conotoxia Senior Analyst.
The fees charged by national investment funds are shocking. According to the NBP data presented in the "Development of the financial system in Poland", the median of management fees in equity funds in Poland amounts to 4.03%. Meanwhile, these costs in the EU, counted together with Poland, amount to 1.89%.
Mixed funding is no better, with 3.26% for management alone being charged, compared to 1.51% per year in the EU. However, the NBP data shows only a part of the fees. It does not include the costs of acquisition and repurchase, which are widely analysed in the European Commission's publication entitled "Distribution systems of retail investment products across the European Union".
Fees, fees and more fees
The KIID (key information for investors) presents four types of fees. These include the purchase fee, repurchase fee, management fee and resulting fee. In its study, the EC analysed only the first three fees. Among the 15 analysed EU countries, practically in all types of commission and funds, Poland is at the top or close to the highest levels.
In the case of equity funds, the median fee for the purchase of shares is 4% of the invested capital. The median exit rate is also 4%. The management fee mentioned earlier in the NBP report amounts to 4.03%. For EU countries, the average median of these fees amounts to 3.65%, 2.01% and 1.89%, respectively.
Also, what is particularly worrying is the fact that in Poland there are virtually no funds with low operating costs. In the UK, management rates start from 0.48%, in the Netherlands from 0.42%, and in Spain or Sweden, there are funds where 0.14-0.20% is charged for management. In Poland, the lowest fee in the EC study was at 2%.
Costs will eat up even half of the capital
Costs incurred by customers in pension programmes (such as IKZE or IKE) are even more problematic than fees in multi-year-oriented funds, especially as tax incentives support them.
The median of fees for management of pension products is 2%. This does not seem to be exceptionally high, but it must be remembered that this fee is charged on all assets being managed. It is particularly painful when our investment will come to an end, i.e. when we start our retirement period.
This is perfectly illustrated by David Pitt-Watson's management fee calculator from London Business School and published on the Financial Times website ("Calculate the hidden cost of fund fees").
Assuming that we save 5,000 PLN each year and that our investment will last 35 years and make an average annual profit of 4%, then we should gather 387,000 PLN (without taking into account inflation). If our investment is charged only 2% management fees in commission for the fund, we will pay 136,000, i.e. over one-third of the final capital gathered.
If the management fee is 3% in our fund (the maximum in the EC study), then in our example it translates into costs at the level of 187,000 PLN, i.e. it takes away 48.3% of our final retirement savings.
What with the Employee Capital Plan (PPK)?
In the Employee Capital Plans (PPK), the legislator limited the maximum management fee to 0.5 - 0.6% per year. This means that the costs of our investments in PPK will be many times lower than in pension funds that are currently available. Perhaps this will also force the market to finally launch an aggressive campaign to reduce fees for customers, not just to acquire them.