/ Money

How can we tackle rip-off pension charges?

Our guest, Angela Eagle MP, sets out how we can tackle rip-off pension fees, and asks if you’ve been affected.

This is a guest post by Angela Eagle MP. All views expressed are Angela’s own and not necessarily shared by Which?.

As a former pensions Minister, I know more than most that eyes glaze over as soon as you raise the subject so why on earth am I moving a Ten Minute Rule Bill on pensions charges in Parliament?

Because 34 million people are currently either saving into or accessing a private pension and the introduction of auto enrolment has brought millions more into workplace pension saving for the first time.

Yet it is obvious that the pensions market which is charged with investing savers’ money needs a drastic overhaul.

Complex and confusing by design

The pensions being offered are complex and confusing by design. Providers conceal many hidden charges eating away at individual pension saving pots under the nose of their clients.

The Financial Conduct Authority discovered that some products have up to 44 different charges levied on unwitting customers. The market is lacking transparency.

Price often bears little relation to outcome and the price structure is so complex that it sends no meaningful signals to buyers. The Financial Services Consumer Panel pronounced that the pensions market was “not one where competition works in consumers best interests.”

The Office of Fair Trading pronounced the market for buyers as “one of the weakest it had analysed in recent years.” The Financial Conduct Authority noted that, despite a large number of operating firms, there were sustained high profits, which is a sign of weak competition.

In short this is a market that works for the suppliers not the buyers.

How can this be changed?

There needs to be much more transparency. It should be a mandatory requirement for all auto enrolment pensions to publish a summary of all charges in a standardised form, like it is Holland. This would allow a proper comparison of value for money across products.

There should be caps on charges to ensure that large percentages of sometimes modest pension pots are not eaten up by providers’ charges. After all, an increase in only 0.5% of an admin charge will be compounded over time, so that it costs a much higher proportion of the money saved.

I support Which?’s call for cost caps to apply to drawdown products during the decumulation phase as well as saving into funds during the accumulation phase. Astonishingly there is currently no regulation or cap on charges for drawdown products despite the so called ‘pension freedom’ reforms which allowed savers early access to their pension savings.

This lack of transparency and regulation in the industry is why when I was Pensions Minister in the last Labour Government we introduced the National Employment Savings Trust or NEST as part of the 2008 Pensions Act.

Nest’s low charging structure was designed to be an industry leader and act as a benchmark across the pensions industry to drive down cost. This has begun to work but now is the time to force further change or we could be letting down millions of pension savers.

I’d be interested to hear how you’ve been affected by pensions charges. Let me know in the comments below.

This was a guest post by Angela Eagle MP. All views expressed were Angela’s own and not necessarily shared by Which?.

Comments
D. Shipp says:
3 May 2019

Aviva are a disgrace. Promised a pension of over 8k pa but eventualy offered a pension of 1k pa. No details of how much charges were taken out of the pension over the years or how much that cost in the eventual pension size.

Bernard Schwenk says:
3 May 2019

The whole insurance and financial advice commission business needs investigating and clarifying. Most of it is a rip-off with commissions “earned” bearing little or no relationship to the amount of work or skills involved.
There should be a time limit on return commissions. How can it be right for an advisor to be taking commission 25 years after the original transaction? That don’t even take a risk like the punter does with an equity ‘investment.

Sarah Stevens says:
3 May 2019

My old employer switched pension providers 3 times while I worked there, over a period of 12 years. Each time the old one stopped but fees were still levied on the money in there though now no new payments going in. Bet they were paid a commission each time.
Also sold a private pension in early 90’s on an income of £5,500/annum, including contracting out of serps.

Robert Moreton says:
4 May 2019

Same happened to me except the provider stayed the same (HSBC) but new pensions were started for some reason instead of moving the existing one to the new scheme. Currently have 9 pensions to look forward to

Michael,B,Budinger says:
4 May 2019

Years ago I paid AVCs into Norwich Union, now AVIVA. After a few years it was not earning what I was promised, when I enquired they told me each time I increased the amount I paid in, the financial adviser was given money as per contract.
Yes about half of a years subscription.
Result I stop using financial advisors, and took control myself, I transferred it else where, I also transferred my works pension, because they declared an excess twice, and each time the value dropped drastically.
It was a good thing I did for myself.
But some government has now made it unlawful for people to do this them selves, with out using a financial advisor. For any amount of £30 k upwards. They can charge say 3% or more in fees, of course the government gets its share in taxes.
I think it was Blair and Brown that did this. the excuse working people did not know what they were doing.
I am working class and knew exactly what I was doing, and that with a secondary school education.
My advice to any one, get a Stakeholder account, because you will have your own account, one which employers can not touch. Mind you any and every labour government will plunder it. My experience.
You do not need an advisor to open a new account for you, do it your self, and transfer any thing under £30 k into it.

Doing it myself has work out well for myself and my wife.

nicholas frost says:
4 May 2019

I had an avc pension with Standard life and, because I was made redundant, could not make further contributions but still had excessive charges that decimated my pot. I now get a very small pension from this fund and would have been much better off with putting the money under the mattress.

Tania Clegg says:
5 May 2019

Same here ended up with a pathetic total sum of a one off payment of £326 as they took £86 in tax from it! Had I not cashed it in at aged 55 there would have been buggar all left due to err admin fees of £2.14 per month leaving absolutely zilch come the then retirement Age of 60! Absolute daylight and condoned robbery! Never again would I pay into a private or top up pension! Contracting out of serps was ill advice however no one wants to help or reimburse! This government embraces theft from the ordinary working public they need sentencing for colluding to fraud!

Lynda says:
4 May 2019

We took SSIP pensions many years ago – they have to be administered by financial advisors who pop up once a year when fees are due. The fees taken are exorbitant to my mind . The pot isn’t huge and the advisors don’t do much apart from sending reams of paper at fee time . The advisors etc take more over year from my account than I take -surely thus cant be acceptable . Also in some instances when the pot fell below a certain value the fees increased – crazy . But when imps a ssip you’re stuck . The whole system needs sorting out. The FA’s are the only people who benefit especially if you’re a small fish in their big pond.

You can administer a SIPP yourself.
I have one through an FA; they buy and sell the investments, reinvest dividends, pay me quarterly and I pay then a reasonable fee for them to do this work. I pay also for their investment expertise and their efforts have maintained the value of the pot pretty well. Would I have been as successful? I doubt it, but it would have been luck if I had.

Seeing the comments about Norwich Union and Aviva has prompted me to bring up the Cash Security Plan, a long term savings plan supposedly to save money for retirement. Instead of the big promises of a nice little nest-egg later in life, you were trapped into a very long-term useless savings plan. Instead of the minimum projected £49,000 (but told could be as high as £60/£70,000), it matured with £17,000.

A day at the British Library and I was able to find an original advert.

Maybe I was financially naïve in those days, but that advert looked like a good investment for my future and phone calls to Norwich Union at the time confirmed it.

The name of the plan changed from Cash Security Plan to a With Profits Endowment maybe around 2001.

Norwich Union then Aviva strung you along with statements like:

2004 – There is a rigorous approval process in place to ensure that your interests are protected. We are working in close consultation with our industry regulator the FSA throughout this process.
Where were the FSA safeguarding the interests of policyholders?

2004 – Significant benefits guaranteed at maturity.

2006 – …. markets performed well .… …. final bonus rates have been increased …. I would like to reassure you that you will receive a fair share of what your investment has earned when the policy pays out.

2007 – ….further increases to the final bonus rates…. When your plan pays out, you’ll receive a full and fair share of all the profits your investment has earned.

2008 – …. Pleased to tell you we’ve been able to increase final bonus rates ….

Bonuses in the £400s were added in the early years, but the more you paid in, the less bonus was added. After Norwich Union became Aviva in 2002, added bonuses were a maximum of £28 per year. From 1988 – 1992, building societies were averaging 10.5% interest but less than 5% was added by NU.

In 1992 NU stated less bonus will be added to policies in the early years but more in later years – they lied.

In my opinion, the mis-selling of these savings plans was far worse than the mis-selling of PPI as they trapped you into paying into them for a very long time. When it became apparent that they were a rip-off, you had the choice of cashing them in and losing a substantial amount or carrying on and hoping for the best with the promise of a big final bonus that never appeared.

In 2002, the promised final bonus became ”A final bonus is not guaranteed”.

The plans included an unnecessary life insurance policy that appeared to be a bonus of the policy, not something you paid for.

Okay, perhaps I didn’t actually lose any money, but the policy was sold under false pretences with promises that were not kept and was little more than a cheap loan. But it was money that could have been put to much better use.

I can relate to that, Alfa. I was one of the many encouraged to switch from a repayment mortgage to a with profits endowment mortgage on the basis of advertising and widespread advice that this would be worthwhile. Many were left with policies that would not pay off their mortgage at the end of the term. I was one of the lucky ones and was kept informed as to whether my policy was on track but when I looked back at the advertising of the policy I felt very let down.

Thanks wavechange. We also had an endowment mortgage that we had to find extra for at the end of the term.

I am just glad I didn’t keep paying until reaching age 65, although younger people could still be paying into these schemes.

I’m very sorry to hear you have lost out twice, Alfa. I wonder how many other people were let down by NU and your mortgage providers.

DerekP says:
5 May 2019

I started out with an endowment mortgage which also underperformed. At least to some degree, this was compensated by the windfall of a demutualisation bonus.

In my case, I was able to overpay the mortgage and so paid it off early anyway, so I didn’t suffer too much.

It does grate somewhat that banks will refund people who act irresponsibly, maybe taken in by a get-rich-quick scam knowing they can plead ignorance, when other people have tried to plan and save for their future but been conned by the financial institutions and got away with it.

I wouldn’t use the word conned, more ripped off. As you say, some of us have tried to plan and some, to avoid risky ventures. This means choosing between main stream providers and every one of them has given us a poor deal either in charges or in low interest. To con is to deceive, our financial institutions simply don’t deliver and don’t care about it. That’s probably worse than conning. Where I might accept a con is the actual workings within the finance sector and the comfortable living some of its employees enjoy with our money. This opaque area is not something we can investigate easily.

George Morley says:
4 May 2019

THE UK FROZEN STATE PENSION IS BLATANT FRAUD AND MUST BE STOPPED and pension parity granted to those that have suffered this discrimination plus compensation as many have lost thousands of pounds over many years of deprivation – my wife and myself 20 years of government theft.

The state pension is not frozen, but currently must increase by “either the rate of inflation for September of the previous year, the increase in average earnings, or 2.5% – whichever is highest.

I presume that George is referring to the UK state pension for those living abroad: https://www.theguardian.com/money/2019/apr/14/frozen-state-pensions-mps-call-for-vote-on-cruel-policy

It is, unless the overseas country of residence has a reciprocal arrangement with the UK.

Totally agree with that government theft statement the biggest parasites stealing from the working class public! They should be made to reimburse and jailed for fraud!

Sally says:
4 May 2019

I joined my university employee pension a year or so before the current crisis (significant increases in contributions needed for no more benefit). I tried hard to understand how everything worked when I was deciding whether to buy in but the language is not that easy to engage with. I was asked if i wanted to transfer my tiny pension from another job into the new pension and was going to as I liked the idea of just one pension pot. But after some questioning effort with the pensions officer, I realised I would then pay fees for my new provider to manage my old pot. Something that was currently free. I probably would have just switched it in without realising otherwise to try and keep everything together neatly. I’m sure some people will have done that without realising something that was free is now chargeable, with the only benefit being having less (tiny) income streams.

Cliff says:
4 May 2019

The whole pension system needs to be investigated. Fees are just one headache (I administer my own pension pot, called a SIPP, and have to pay commission to the broker). You get no, or tiny, interest on cash held in a SIPP, the idea being to encourage you to invest as there are more commissions that way for the broker. The vague pricing of funds (unit trusts) means that you may not get the price you see – eg: if you see the quoted price and want to sell, the price you get will the NEXT DAY’S valuation, which could be much lower. I have lost hundreds of pounds that way, though thankfully my fund was in good profit. I am now 64 with no job, effectively retired because nobody wants to employ older people. The only thing that stops in retirement is your income, the bills keep coming. I’m now renting (money down the drain) but I can’t take much out of my pension pot without incurring tax. The money I’m paying in rent could pay a mortgage, but who would give a mortgage at my age? I can’t get a council property either. It would be good if a pension pot could be used to buy a property without incurring tax. Pensioners need a better deal!!!

Mark Cropley says:
4 May 2019

Colleagues found pensions to be very technical and a minefield so we formed a working group to share information, get the best outcome, minimise tax and try to avoid pitfalls. Employer arranged excellent pension seminar with Affinity Connect. Very helpful advice from St James Place, employer’s pension fund, Radio 4 Moneybox, financial media and independent pension websites. Took over 2 years before able to make an informed decision. Avoided annuity rates at only 2% pa, as would take about 45 years to get lump sum back.

Rosemary says:
4 May 2019

I was only thinking about the charges on my pensions the other day? I have two pensions (as neither of the financial advisors I have wanted to take on the other ‘s pension pot)? As I have already started my drawdown on one policy my financial advisor has advised me that they do not want to act on my behalf in future as my fund is £30,000 and will cost more to run by them and they do not usually service plans of this small amount?
I totally agree that the fees should be more transparent as I do not know how much I have been paying over the years and would appreciate any advice on how to check the fees charge?

Lynda Harper says:
5 May 2019

Why can’t we increase NI payments and everyone gets a state pension they could live on (as most European countries do)? Eliminates the fees problem and keeps everything in one pension pot so eliminates the other problem of keeping track of multiple pensions.

It would be difficult to mix up occupational pensions to which employers contribute and the state retirement pension which is funded from National Insurance contributions [and general taxation as and when necessary].

The state pension is a sort of safety net for people who do not have a private or occupational pension or whose income is otherwise inadequate. It is entirely based on the number of NI contributions whereas occupational pensions are based on percentages of wages and years of service; private pensions are based on the amounts contributed and then invested.

The state pension was never conceived as providing a living wage for the rest of someone’s life [and to do so would be prohibitively expensive]. Some occupational pensions have defined benefits [which are guaranteed irrespective of the investment returns] and others are reliant on the investment yields from defined contributions, so combining the two categories of pension [i.e. state and occupational] would be extremely complicated and there would need to be a range of opt-outs or special provisions. Although most occupational pension schemes are based on one of those two models [defined benefit or defined contribution], in practice no two schemes are identical in their terms and benefit provisions making equitable harmonisation virtually impossible. A transitional period could last for almost a century!

Increasing people’s NI contributions would require some sort of reduction in other forms of taxation to compensate for the higher rates. Various adjustments would also be needed to employers’ contributions to reflect the changes in the balance of funding since independent occupational and private pension schemes would still need to continue in order to meet needs not covered by the state scheme.

I think the system is complex enough at the moment without adding these kind of complications which would make it even harder for people who have had a mixed career path and periods out of work to understand what they are entitled to. There must be better ways to regulate management fees and charges than upsetting the whole applecart.

Les Hill says:
5 May 2019

Back in the eighties I was adviced by the then Tory Government to opt-out of SERPs and my LA pension funds and go into the private sector then in the nineties the then Labour Government told me I had been given wrong advice and I should buy myself back into both which I was also adviced go do by the companies who had my funds and they arranged for this to be done and paid any fees or shortfall in my SERPs & LA funds. In the late nineties I was again told that my LA fund would not be enough for my future personal pension needs so I should purchase AVC’s if I could afford it again this was buy the Government of the day, so I arranged with my employer to purchase £100 of AVC’s every month via the company I wanted which was Scottish Widows bit was told that I could only buy them from the fund recommended by the Government & LA’s which turned out to be Equitable Life (lol) then several years go by and this company have my money and millions of other LA NHS & Government staffs, the company then goes bankrupt owning Billions of pounds to people’s pension funds. I find out a few years later that the then Government at the time had given compensation to all those working for Government Departments or Civil Servants 60% back, also NHS staff got 40% back but me a lowly LA worker who last thousands of my hard earned low wage salary got 0% Compensation back from any one, and still I have plan for retirement now based on a much reduced LA pension that this current Government have cut and changed the regulations and laws governing it without asking what we the workers who paid in think plus I have to work an extra 12yrs to retirment as I had a forty year max pesion when I started now they have changed that to unlimited and upped the age for my retirement from 55 to 67. When I enquired about taking my pension pot out so I could reinvest it onto a private pension that I could control I was informed that I could buy I would only get what I had paid in over the years with out any interest or any of my employers contributions so it would be worth less than a 20th of my actual pot should be under those rules. Now that is what I call ripping of the working man on the basic low wage. But nothing more than I expected now from the lying thefthing polititions in Westminster eating drinking holidaying with thier second houses all paid for on expenses from mine and your stolen tax monies. No one in politics should be allowed to have another job or get money from other people or groups for any reason what so ever and they should have completely clean criminal record any conviction they lose the job and all benefits that came with it. They should get a yearly salary and a free rail and bus pass for work use and no other expenses at all like all LA workers get for expenses, not the rates they get now and no subsidised bars cafe or other items and definarly no second homes or rent for flats etc. They want the job then they work at it like the rest of us and pay for the stuff they need to do that job otherwise don’t do it we need to stop this whole sale theft of the nation’s purse by political people and make it an honest open system otherwise we will become morally bankrupt as a society and nation.

Brigitte Lardier says:
6 May 2019

I am a victim of The Equitable Life fiasco. Not only was I charged with fees but I lost so much in pension. By the time I retired, Cameron decided to compensate us by reducing the original compensation of 50% under Gordon Brown to 22.22%. So, it does not pay to save for a pension and the rate of interest well below the rate of inflation is a smack in my face. People fall back in being buy-to-let and we have an all time high prices in housing. This is a recipe for a disaster but that is what we have both under Labour and Conservative governments.

It is certainly the case that the increase in buy-to-let investment was a reaction to the loss of confidence in the life assurance and pensions providers, but it was also a result of legislative changes that made assured short-hold tenancies attractive, BTL mortgages more readily available with high loan-to-value ratios, and the accompanying leverage [i.e. 100% of the gain for 10% of the investment, the rental covering the loan repayments] very appealing. It could, though, have parallel consequences over time and I believe people should not escape to that area without very serious consideration of the implications and maintaining alternative investment vehicles as a way of balancing risks.

While not on the scale of the Equitable Life débacle, and unlikely to have the dramatic consequences of the gross and reckless under-funding that the life assurance society presided over, buy-to-let has the potential to be a serious financial problem in the years ahead for many landlords and their descendants.

Because of emerging and continuing problems of financial insecurity in the sector it has been necessary to rein in the BTL market with more onerous conditions and with changes to the tax regime for moderation as well as for fiscal purposes.

Despite the rise in property values I foresee problems ahead with capital gains tax and/or inheritance tax liabilities reducing the anticipated net capital receipts as landlords [or their estates] need to exit the property business in bulk and in an unplanned way at uneconomic valuations. In some areas, or for more recent entrants to this kind of investment, negative equity could cause problems because the local lettings market is oversupplied, rents cannot be increased in line with costs, and extended voids become the norm.

Because it is a largely self-invested and unregulated activity and the ripple effects will be widely dispersed over a number of years, it might not have the impact of the Equitable Life collapse, which was the burst of a bubble for which the government had partial responsibility and with no suggestion of any greed on the part of the policyholders, but it could nevertheless leave many people much worse-off than they had hoped to be when their portfolio has to be liquidated. Passing it down to a succeeding generation is fraught with just as many difficulties unless the process was started many years previously which generally has not happened.

George Stevenson says:
7 May 2019

I joined Abby life pension plan in 1985 with all the promises of a bright
retirement ,what tosh ,as for the charges who knows what they charge
for or when or how much ,you just cant work it out , But every year they
report bumper profits , and our pot gets smaller ,rip of or what.time for
change . deliver the promises they made,

Russell says:
11 May 2019

Had a private pension which I contributed to from my wages for 4 about four years, but when I wanted to cash it in, there was absolutely NOTHING left in the pot, all the commission had been consumed by the Pension provider – never again.

Mrs.L. Gordon MISM says:
11 May 2019

I no longer give free comments to Politicians who steal my intellectual property. They ignore my complaints and dissatisfaction. Pension fraud by Financial Advisors. I do not get paid for my suggestions.

Mr R Moore says:
16 July 2019

I have a SIPP with Rowanmoor investing my pension in a holiday resort on Cape Verde, Resort Group own it. There was a Panorama TV documentary about it. I have seen Rowanmoor’s profits are up 350% this year! I have complained on number of occasions about their fee in these last few years, as it is always in excess of the pension income I get from Resort Group; which is now falling below UK inflation. So, instead of having a pension I now have a debt which I can hardly service on my low income, this is such a worry to me and my wife. Rowanmoor have a fees to cover everything that moves in or out of the SIPP i.e.: it costs over £100 to take any money held in my account. When I ask them what the annual fee covers which would help me, all they say is it is a standard non-negotiable fee. I am stuck with this disaster of a SIPP, and only wish I never was introduced to it and hope someone could take it off me so that I don’t have to worry every day servicing the debt