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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

I was encouraged to save into a pension in the 1990’s as a means of having a comfortable retirement.
I have two issues here – 1) the “legal theft” that has occurred with the government’s Pension Changes, eg the life time allowance and annual tax charges – I was encouraged to invest into these schemes and was offered an “inducement” to save in the form of income tax relief on contributions. This was subsequently penalised in the form of “legal theft” with the subsequent changes to Pension law, meaning 55% tax reclamation on an initial investment with 40% tax relief. IF these changes were foreseen, many people would have chosen to invest in alternative ways, such as paying off my mortgage! 2) the “hidden” level of fees charged by Financial advisors on investments such as SIPPS – these charges are not transparent, and not related in any way to the performance of the SIPP!

Peter Chapman says:
3 May 2019

Switched my private pension to a Royer mail , the government of the day plunder the pension by take out money to pay for all the giveaways (free bus pass etc) i ended up with a very small pension.

Mike Hodgson says:
3 May 2019

This has been a long time coming but I’m sure it will be kicked into the long grass pretty swiftly…. I hope I am wrong but past performance is not an indicator of future gains…… Unless that is you are a pension provider, their fees are never affected regardless of market conditions. Legal and General were “providing” a pension fund for myself the fund itself was only growing by contributions and they were still taking their fees. An absolute disgrace

Ian Mellows says:
3 May 2019

My Private Pension lost over £9000.00 last year. But the company my pension is with still took over £700 in fees. I think that is not only unfair, but bordering on scandalous. Pension companies fees should be based on a percentage of profits made. No profit, no fees.

I don’t think that any of my private pensions were managed since the 80’s as I don’t ever recall having pension portfolio advice and the world of investment has changed markedly, so it’s just straightforward do nothing but take a 1%+slice off each year for doing nothing, apart from printing and sending updated values.

I switched my pension provider some yeas ago having had problems with Scandia, part of the Old Mutual Group. I believe that this has now re-branded. Scandia had problems with addition and the truth, but I was more concerned about how they deducted their fees. This was done in a totally non-transparent way, by cancelling units within funds. The complaint went eventually to the Ombudsman Service who concluded that I had not been harmed by Scandia’s errors and what they were doing was within the law – so the law needs changing to make these companies more transparent and accountable.

I have had trouble with Scandia, too.

Trevor Yeo says:
3 May 2019

The biggest issue is that we pay charges over the course of the pension lifespan in one account, then for the DC pensions we are made to switch out off the account setup for the life of the pension into other accounts in order to take the pension, then incur higher account, transfer, Payment and a new account charges why ??

We need one single account “Lifespan Pension” which should cover your whole working life for which ever company you work for, Extra one off charges should not be incurred at point of pension commencement and NO charge should be applied for payments. (Perhaps single fixed payment for setup only)

MGB says:
3 May 2019

The new enforced pension saving legislation is great! …for the providers, as always, rubbing their hands together now I bet.
All fed by the decay of jobs-for-life & worker rights, pay inequalities, companies allowed to legally raid and underfund their pension funds, poor state provision (UK state pensions are the worst in the developed world!), the destruction and privatisation of public infrastructure (NHS, utilities, transport) increasing monetary pressure on those retired. The list goes on!

Margaret Lang says:
3 May 2019

Where pensions are very small there should be a lower percentage rate that providers are allowed to take. We hear so much about how
the elderly cost the country too much but I do not claim any benefits
and never have and have a reduced pension – I’d like to see pension
providers living on what I do. They wouldn’t care anyway.

I had an investment via The Lifetime SIPP Company Limited which I claimed miss selling for from FSCA but the award was small due to the supposed value of the underlying investment. The underlying investment was in hotel rooms in Turkey that were affected by terrorist activity, the UK company looking after the investment failed and now investment likely to be worthless. The Lifetime SIPP Company Ltd also failed and was bought out by Hartley Pensions Limited who were collecting the SIPP fees anyway. After almost emptying the account for fees they are still charging me £1000 a year fees to look after £0.90 in the account which is a lot for not doing very much and I cannot get out of the SIPP contract. Morally this is wrong as I was miss sold in the first place and now stuck paying fees with no income from the investment for 5 years now. A way out of this situation is almost impossible for any individuals concerned who are in a similar situation.

Interesting to read the previous comments and it can be seen that there have been and are very many issues relating to pensions and it is not just a case of excessive charging by fund managers et al although one needs only to look at the remuneration of pension and other “city” managers to see that they are doing very well thank you at the ordinary saver’s expense. It is not just the city that is greedy but the exchequer also changes the goalposts to satisfy it’s hunger for tax. A consequence of that is that I and others retired sooner than later and we now have a national shortage of doctors – very clever Mr Osborne! I think pensions are such a hugely important issue that a public inquiry into all forms of pension and how best to manage these fairly to the savers’ benefit should be undertaken or our children and theirs are going to have to depend on benefits in their retirements.

Martyn says:
3 May 2019

My company was putting a few percent of my salary into a collective personal pension scheme with the Prudential. Due to the high charges the Pru (and I guess all of these money lenders) were charging, more was being taken out each month than was being put in. This is nothing other than theft. The fees these money launderers charge is disgraceful and needs to be stopped.

C. Harrington says:
3 May 2019

I was badly stung by expensive pension charges, to set up a pension by a company called Mo…… Ma……
Meanwhile, a pension being managed for me by another company without these expensive charges is receiving twice the returns.
I am very upset that I was duped, and if you are undertaken further research I am happy to provide more information.

ER Greene says:
3 May 2019

I don’t know if I have been “ripped off” as I don’t understand the calculations.Therefore I advocate transparency.

My Private Pension is administered by Sanlam and paid through London Colonial the charges are exorbitant[. As the value of the Pension Pot drops the higher percentage wise do the charges become

clive buchanan says:
3 May 2019

i took the option of putting my pension in an annuity with the thought that with pension freedom i could access it when i was ready and took little off it and a low amount each year then the bomb shell i couldn’t access my money it is now a complete waist ,and not worth it may as well not have it .left with nothing ,soul destroying ,stabbed in the back dose not begin to describe how i feel

Chris Madigan says:
3 May 2019

Can you compare a range of different schemes and charges against those in another country, say Holland.

James says:
3 May 2019

My wife and I decided to put one of my wife’s occupational pensions into a SIPP investing in Cape Verde. The first thing we found is that SIPPs are far from self invested. Firstly the was an IFA who reported back to a SIPP company who arranged the pension with RealSipp who placed the SIPP with Rowanmoor who put the SIPP into The Resort Group. We know there was going to be a shortfall in completing but we agreed that a loan would be taken out paid out of the interest being paid during construction with any balance remaining paid from the initial earnings. In the event when we came to complete the contract, we found Rowanmoor had paid large fee to the IFA and the other companies involved and then took all the remaining interest earned and some of the fund balance to pay their own fees. It then turned out that the loan had never been arranged as agreed so there were no funds available to complete. RealSIPP collapses and was reincarnated as a new company and Rowanmoor was bought out and became a new company which changed name back to Rowanmoor. In the meantime, I made a claim to the FSCS who said no loss had been incurred as the value of the asset had increased. Resort Group claim that the money cannot be reclaimed as the initial contact is under Spanish/Cape Verde law and is non-refundable. Although I believe all the properties have been completed and are being let, not one penny has been paid as her pension. Even in an annuity this would have paid £4,000 a year. The FSCS state her investment is increasing in value but we cannot sell it or get a refund. Companies are making money in fees and income but she is getting nothing. The whole system is failing.

I have lost out completely. I was encouraged to create a pension with multiple investments. It was not a lot but it paid out about 2,500 per annum. When one of the companies went bust (an Austalian Ponzi scheme that should never even have been sold ) the company kept what was left of my money and refused to give me any returns at all. I have no idea how to fight this. Any ideas?

Paul says:
3 May 2019

The pension sytem is broken. We all have a right to somewhere comfortable to live, a decent diet and leisure. A system that has no predictable outcome , puts banking profit before its citizens in some vague hope it will be alright on the night can not succeed, particularly as more than 50% of UK businesses are overseas owned and the profits disappear from the UK economy (tax avoided). UK industry is in pieces yet we are happy to have a trade deficit with China of 20bn.
Its time to join the 21st century, we work to live not live to work.