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We’re calling for better pensions

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Better Pensions
Profile photo of Richard Piggin Richard Piggin Head of External Affairs
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The Government’s radical pension reforms will soon come into effect and people will have more options than ever on how to use their pension pot. But will this mean everyone will get a good deal on their pension savings?

Until now the pensions market hasn’t had the best track record for treating consumers fairly. From April, you won’t have to buy an annuity to access your pension savings, so it’s likely that more will use income drawdown products. These allow you to take your money out gradually each year.

However, even though you’ll have more freedom on how to access your hard-earned pension savings, our research found that there are poor value products and high charges waiting around the corner.

Poor value pension products

We found one provider charging 0.5% more than another for investing in the exact same fund. Another provider’s charges ranged from 0.44% to 1.24% for very similar funds, which would make a significant difference over the course of someone’s retirement.

We also uncovered several high charging drawdown products, including one that charges 2.76%. The difference between that product and one charging just 0.5% would mean you’d lose out on more than £10,000 over the course of your retirement if you had a pension pot of £36,000.

What do we want?

Back in 2013, we campaigned for a charge cap on workplace pensions. A cap of 0.75% will come into effect in April, but we think people should have just as much protection when they take money out of their pension as when they put money in. That’s why we want:

  • A Government-backed provider to ensure everyone can access a good value, low cost product,
  • A charge cap for default drawdown products,
  • Better safeguards for savings in schemes that go bust.

We’ll be putting pressure on the next Government to build on the pension reforms and take forward our asks. If you want everyone to be able to make the most of these pension changes, sign our Better Pensions petition.

Comments
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malcolm r says:
7 March 2015

Perhaps someone could launch a “Trusted Pension Provider” scheme so that you would know where to go to get a fair deal.

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User 66219 says:
8 March 2015

This comment was removed at the request of the user

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Chris says:
8 March 2015

I have had a SIPP and my ISA with a well known platform provider. I was aware of the changes in the commission and fees mechanism that complicates the funds held in SIPP and ISA wrappers. I was also aware of the ‘transparent’ fees list published on their website quoting typical percentages of 0.2 -0.45%. What was really difficult was to find out how much this was actually costing me. It is a bit like logging on to a a banking account and not being able to find how much they are charging you.
It is very clear to see the value of your investments, but to see the charges you have to delve into detailed transaction histories where small amounts are deducted from different holdings on a monthly basis.

There is no clear annual or monthly total informing you of the cost of the service. When we get a bill for charges from any other service, like gas or telephone they are obliged to provide us with a breakdown of what it is costing us, We notice the costs because they come out of our every day bank account, the same pot we rely on for the mortgage, the car, and putting food on the table. Unlike the SIPP and ISA Providers the utility companies don’t hold our life savings, and can’t deduct the cost of gas or telephone from them before we are even aware there was a cost,

The cost of holding a life’s savings in a SIPP with an annual charge of 0.4% can run into hundreds or thousands, but I’ve never seen a bill telling we what I’ve been charged. I see my investments go up each year. I am happy, and I’d never thought to look what was deducted. When I did, that information was very hard to find. These platform providers pride themselves on the service they provide and the quality of the research they generate on the performance of the holdings in your SIPP. When I called to ask what I have been charged and where could I find a total annual figure and a breakdown I was referred to a document folder containing twice yearly reports running into several pages which gave a figure for charges for 6 months. By adding these together I could get an annual figure.

Which is running a campaigning on ‘pensions’ and one on ‘sneaky charges’ in financial institutions.
This is sneaky charges in a pension. Because we trust these institutions to hold our investments, and collect the interest they generate, they have taken the liberty, with out agreement to take their fees and charges directly out of our savings without notifying us, or keeping us posted on what we have paid.

Some of these charges are disproportionate to the work involved in holding these products. Many SIPS and ISAa are no more than glorified bank accounts with on-line access, but with hidden costs of up to thousands per annum, for ‘being in credit’

If you have both ISA and SIPP with one platform they structure their products and fees to deny you and economies for holding then with one organisation. For example SIPP charges may be 0.4% up to £250,000, and 0.2% over that. ISA Charges,may be similar, So if you have £200,000 in SIPP and £100,000 in ISA you will have total investment with that platform of £300,000, and no benefit at all for holding over £250,000 with that platform,

What is also hard to swallow are the potential charges you or your relatives face if you die, Once platform quotes a probate valuation fee of £25 + VAT for each holding in the SIPP. If you had 20 holdings it is a potential charge of £500 + VAT to your estate for a piece of paper containing the same information that had it been printed out 24hrs before your death would have been free. That charge would normally be paid by a solicitor without challenge as part of the disbursements due on the winding up of the estate. I don’t know if I’d call that sneaky but as it is not charged to me , and not until after my death, I would not imagine many existing clients will be complaining, and certainly not after death. These are unreasonable charges and need to be challenged. mos banks will provide a probate valuation for free

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Jonathan says:
23 March 2015

With the help of a Financial Advisor I started putting substantial sums of money aside for my retirement at 50 years of age.

Late in life I know, but I had parents who scrimped & saved for a retirement they never lived to enjoy together. And I had had periods of temporary contract employment, and a still outstanding mortgage.

My father dying at 55, & because my mother re-married virtually all the retirement benefits that would have accrued to her from my father were withdrawn. She had to endure a 2nd marriage that wasn’t good, frequent psychological abuse, simply to keep retirement benefits. She was several years younger than her 2nd husband & should have outlived him; in part due the stress of the marriage & the lottery of cancer she pre-deceased him at 70. Some retirement.

The new rules would have been of enormous value to them.

In my own case I started enquiring about making my own pension provision sometime after the continuous permanent employment part of my career ended, at age 43.

Then to have secured a pension equivalent to my last permanent salary would have required accumulating a pension fund of £300,000. Ambitious, but potentially achievable.

2013 I retired at age 65. My wife then was 63, and has similarly drawn her pensions. We have a joint income approximately 30% of my final salary, 25% of joint final salaries.

In the annuity yields prevailing in 2013, 3%, to have achieved our original goal would have required a fund value of £2M; a totally unrealistic target, even had I saved over the whole of my working life!!

One UK fund I invested in made no growth & paid no completion bonus!! It only contributed to my annuity exactly what I had put into it!!

We worked for the last 4 years of our working lives in The Netherlands.

By contrast for the period worked & the value of the pensions we receive, occupational & Dutch State pensions their schemes are much better value; of the order 10 – 20 times!!

By contrast UK private pensions are subject to all sorts of deductions while the fund is accumulating: tax on dividends re-invested, management fees, commission to financial advisor. All of which severely limit the growth of the fund; which was especially important in my case where the 2nd half of my working life, post 43, was characterised by temporary contract work & several prolonged periods in excess of 12 months with no work.

I am sure I am not alone in this.

It is not just the rules on cashing-in that need to be looked at but also those applying over the funding phase.

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