Prudent savers hit by hidden fees on pensions
By Robert Winnett, and Holly Watt
Prudent savers hit by ‘excessive’ hidden fees on pensions
Prudent savers are having their retirement funds “eaten away” by excessive hidden fees, the organisation representing pension funds will admit.
The National Association of Pension Funds says that fees are too high and that consumers face an “eye wateringly complex” system of hidden levies.
Last year, The Daily Telegraph exposed how pension charges could strip pensioners of up to three quarters of their income.
Fees in this country are far higher than in some other European countries and in America.
Today industry leaders will announce that a new code of conduct is to be developed to inform consumers, “in pounds and pence”, exactly how much of their pension savings are being lost to charges.
It is hoped that this will kick-start competition and drive down fees but ministers have warned they will intervene and introduce a compulsory cap on pension charges if the voluntary approach does not work.
Joanne Segars, the chief executive of the NAPF, said: “We know that one of the problems we have at the moment is a lack of trust in the financial services industry. So if we could start to act in a slightly more honest and open way, then that should help give people more confidence in pensions – and start to exert downward pressure on fees and charges.”
She added: “Every penny that comes out in costs and charges is money that’s not going in and not building up somebody’s pension. And I mean some of these charges, particularly on older plans, can be five or six per cent [a year] so they can be very, very high.
“So the first issue is the level of charges but the second is about the way those charges are disclosed. It can be really eye-wateringly complex . . . that the disclosure is in percentage points, and unit prices and whilst all of that may mean something to me, it doesn’t mean anything to the average person on the street.
“If you start to see actually that I’ve been charged £200 this year for managing my pension, where has that money gone and what have they done for that – then that will start to exert a downward pressure on the fees and charges.”
The move was backed by Steve Webb, the pensions minister.
Last night, he told The Daily Telegraph: “I am pleased that the NAPF is taking this action because we know how even apparently modest charges can take a big slice out of people’s pensions. We are seriously considering capping charges for people who will be automatically enrolled and we have just amended the Pensions Bill in order to extend our power to do so.”
Next year, the Government will introduce rules that will automatically enrol millions of workers in company pension schemes. However, there are growing fears that workers will opt-out of the schemes in protest at the high fees.
Mrs Segars said: “There’s no point in bringing people into a pension if their savings are going to be eaten away by fees and charges which they can’t understand. They’ll simply walk away.”
The NAPF, which represents funds with assets of nearly £800 billion that provide the pensions of nearly 15million people, has ordered a summit that will bring together consumer groups, industry leaders, investment firms and employer bodies to draw up a new code of practice on fees and charges.
Last year, The Daily Telegraph disclosed that a range of little-known fees and levies typically wiped more than £100,000 off the value of a middle-class worker’s private pension.
A report, by David Pitt-Watson, one of the country’s leading pension fund managers, and a team from the Royal Society for the Encouragement of Arts, Manufactures and Commerce, warned the Government that the system was in need of urgent reform to bring these costs down.
According to Mr Pitt-Watson, someone saving £1,000 a year throughout their working lives would retire on an inflation-protected pension worth £16,080 a year if they did not pay fees. However, the typical fees levied by British pension funds would reduce the payout to £9,900 annually.
“When people hear that they are being charged 1 per cent or 3 per cent, they think they are being charged 3p in the pound or 1p in the pound, and think ‘that’s fine’. But because of compounding, the pension costs actually add up to 40 per cent,” said Mr Pitt-Watson.