/ Money

Keep your hands off our pensions

Pension pot with rainbow

Many of us are having to work for longer to deal with the pressure our finances are under. But if changes to the pension markets don’t work for consumers, our plans for the future could be put on hold even further.

Many of you will have conscientiously saved into a pension over the course of your working life. The Government’s auto-enrolment policy will mean everyone in the workplace has the opportunity to start contributing to a pension. But joining a pension scheme doesn’t guarantee a comfortable retirement.

That’s because you might be stuck with rip off pension charges. Millions of people are, but the trouble is, many of you won’t realise until it’s too late. By then, your pension pot may already have been significantly reduced.

Plans to reform our pensions pots

Last week the Government announced plans to reform the pensions market. It proposed a cap on administration fees for auto-enrolment schemes. But we don’t think these plans go far enough. We believe the cap should be lowered from the suggested 0.75%, to 0.5%. We want this cap to cover all and new and existing workplace pensions. We don’t want you to be penalised for the years you’ve already invested your hard-earned cash.

Gone are the days of a job for life. Many of us adapt our working lives, take opportunities or move jobs as our personal circumstances demand. So we’re also calling on the Government to stop charges from being jacked up when you switch jobs.

Cut the pension cap

We’re pleased the Government is consulting on pensions but we urgently need new, minimum standards for all workplace pensions so people can be confident that they’re being enrolled into high quality, good value schemes.

With your help, we’ve successfully campaigned for an end to consultancy charges on auto-enrolment pension schemes. The Government and regulators took action, and in May this year, announced a ban on charges for auto-enrolment schemes. And we’re confident we can get further action as we demand fund managers keep their hands off our pensions.

Anyone paying into a workplace pension scheme should feel confident that their money is being well looked after, not lining the pockets of a fund manager. With consumers being squeezed by the rising cost of living, there’s no room for rip off pension schemes to come back to bite us after our working life.


Here’s the dilemma as I see it. The cash you put into your pension does not stay as cash – it is invested in products that should both grow in capital and produce an income to grow the fund – so stocks and shares, bonds etc. These investments need to be carefully managed over the 40-50 years you may be contributing to your pension and they will be changed as economic circumstances change (bonds not so great at the moment apparently). To do this requires people with expertise and committment, and they need to be paid to do this. The danger of paying too little is you get poor quality management, which will be reflected in poor growth in your fund.
The trouble is, all this takes place long term and is very opaque.
Maybe what is needed is a combination of rewards for the managers – a (smallish) fixed management fee plus an additional fee related to how well the fund outperforms a benchmark. It is little different to having personal investments professionally managed – a good manager may charge you more, but if they outperform the market then they more than pay their way.
The trouble is, nothing is certain in investments.


“The trouble is, nothing is certain in investments.” I’m pretty certain that fund managers have their best interests ahead of mine.

Maybe their fees/charges should only be levied when the value of a pension fund while its going up ( and by the amount that its gone up), and not as currently happens, all the time.

e.g. At the end of year 15 your pension is worth 100k, at the end of year 16 its 115k, so you pay fees on the 15k, at the end of year 17 if worth 114k , so you pay nothing in fees. Which would make up for the fact you’ve paid 12k in , and they’ve “lost” it.

Or I’m sure the following will be a scenarios that many people are in: You had a pension but left the job, so you’re not paying anything in, but every year the fund goes down due to all the fees they’re levying. Or you had a personal pension that you had to stop paying into when you started a company pension and have watched as that pension is emptied due to fees being levied year after year after year.

Just a thought.


Which? Just how do you calculate 0.5% as being the appropriate cap? No criticism, a straight question.


Hi Malcolm,

Good question. 0.5% is an appropriate cap based on what is best for consumers, but still affordable to the industry. The OFT found that the average charge for new schemes being set up this year is 0.51% and there are new schemes in the market which charge 0.5% a year or less. Auto-enrolment will bring millions of people into pension saving increasing total contributions by over £11 billion a year. It is vital that the charge cap sets a clear standard so that schemes offer value for money. Hope that’s helpful.


Thanks Piers. I think it important that the fee is sufficient to allow proper management of the pension fund. You would think it worthwhile for small businesses to club together so they aren’t all involved in separate schemes. I assume this will be the case? Will there be “standard” schemes that they can join in?


Thanks Malcolm, you make a good point about small business. There will be more multi-employer schemes set up so that small businesses are able to access the benefits of being part of a larger pension fund. The NEST scheme will continue to be available to all businesses and will be a high quality, low charge scheme, run in the best interests of scheme members.

We support strong quality standards and a charge cap for all schemes so that small business enrolling their workforces into a pension scheme can be confident that they meet minimum standards. Whilst we appreciate that some small businesses will want and be able to spend significant amounts of time choosing a pension scheme, many will not have the time or resources to undertake this exercise. Quality standards and a charge cap are the best way of ensuring confidence for small businesses and their employees.


Whilst trying to campaign on a cap on management fees, I think you should also include a cap on bid/offer spreads. Cos all that will happen if you get a cap on management fees is they’ll just try to recoup the money from other revenue streams.


This is always a danger where you artificially restrict trading income. They will try to get their fair income in other ways (let us assume there are ethical providers – I believe there are) to ensure they can provide the expertise needed to run an effective scheme. I believe I am with a decent provider of my relatively small SIPP; despite fees and 6% drawdown it is still increasing in value. William worries about fees eating into the fund if you stop contributing. Reinvesting dividends and capital growth should more than offset fees if it is a well-managed fund.


These would be the same dividends that have had all tax relief removed from them, thus reducing the return even further?

“let us assume there are ethical providers – I believe there are” Can I assume you’ve not worked in the industry or connected industries, cos I don’t share your faith in them and I have.


William, correct – that was a bad decision by a previous government that was unfair to pension funds ( or at least to their smaller savers – I would not object to larger savers having it removed). However my SIPP still shows growth and yes, I regard my provider as doing a good job for me and could be described as ethical. It is a mistake to tar all providers with the same brush. It needs expertise to sort the better from the worse – lets hope Which continues to do that.
As an engineer I used to wind up another department by saying it was the 95% of salesmen who got the other 5% a bad name. I didn’t mean it, of course – no more than I would apply it to financial services providers.


I would like to suggest that fees are not the only area that needs looking at. I recently started drawing my pension from an employers scheme. When I asked them how they had worked out how much to pay me they refused to tell me. I went to the Ombudsman but apparently under the law pension schemes are only required to divulge a limited amount of info. Seems to me that members should be able to see how their pensions were calculated!

Roy Pullinger says:
9 November 2013

State worker have very valuable and generous pensions which are beyond the reach of anyone else.
Pay out to retired workers must rise by at least 2.5% a year but this rule might be scrapped shortly.
The Government should not tinker with any part of the our pensions


The whole question of pension fund fees is a minefield and no doubt the solution is to reward the fund managers only on their performance in increasing the value of your pension pot, however this is going to take a long time to become mandatory, so in the meantime I have taken my private pension out of the hands of a pension fund and then out of the hands of an IFA and put it into a SIPP, for I have discovered over recent year that the best fund manager is me. I have increased my fund value by about 30% over the last 3 years without any external advice. One problem to watch out for is the SIPP management fees which can be quite steep for doing almost nothing.

Although this discussion is focused on building up your pension pot, a very important issue that is ripping off pensioners is the obligation to buy an annuity on very unfavorable terms. The problem here is not so much the fees that annuity provides take, but the fact that they are required by law to back the annuity by a bond, which at the moment pays out very little because interest rates are so low. Whilst it used to be good sense to back an annuity by a bond, now it is unfair. Private pension holders should be allowed to invest their pot into other types of investment that yield a decent income stream.