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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.

David, I agree about annuities – I wonder how many people know to shop around to get the best deal. An annuity is an insurance that must pay out for your lifetime, and using bonds as I understand it is to provide a guaranteed income to the provider. The problem with investing in more risky things – stocks, property – is they are less certain to provide that income.
My view, like yours, is that a SIPP is a better form of pension in that you have the chance of it growing through capital growth and reinvesting income, you can drawdown flexibly, and when you die there may be a pot left (less 55% tax I think) for your heirs – unlike an annuity which dies with you. However you need expertise to manage a SIPP – sounds like you are confident in your ability, but others are less likely to be so need professional help. But I would only opt for a SIPP if you have other income – such as an enhanced state pension.

Hi Malcolm,

We seem to agree on this, it’s just that because a new annuity will pay out at a rate that is less than inflation, buying an annuity at present is a bad idea. But for those who want to go this route, yes, they must shop around.

The alternative is a manged SIPP providing the punter chooses a provider that has a reasonable expense ratio, a firm like Hargreaves Lansdown for example. I am not sure that the SIPP route has to be contingent on having an enhanced state pension or other income source; maybe I am less risk averse?

rich e says:
13 November 2013

whatever happens in the markets, fund managers never seem to lose…the big house in the leafy ‘burbs, big cars, kids at private schools, nice holidays. Rocket scientists they ain’t, but they have the barefaced gall to gamble with other peoples hard earned & win or lose, their lifestyle & conscience is unaffected.

rich e, one option is to become your own fund manager and pick your investments. Good fund managers don’t gamble, but no investments are certainties – some will lose money, or fail, others will gain. The good manager will aim to get a balance. When joining a fund you often have options as to the degree of risk you are prepared to take.

Trevor says:
13 November 2013

The fact is, most fund managers are useless over the long term … because most managed funds underperform the market index most of the time. And predicting which managed funds will outperform the market index over even a few years is practically impossible … funds that outperform the market index for a couple of years often underperform it later on … how good is that for pension pots that are invested for 20/30/40 years??

Show me a fund manager who will guarantee to continually outperform the market index for 20 years in return for his continually guaranteed x% fee and I’ll jump at the opportunity.

Sure you can’t find one? Thought so … that’s why they all have that “past performance is no guarantee of ….” get out clause don’t they?

Pensions should be invested in market trackers and trackers should have minimal management fees (way less than 0.5%) ‘cos the management company has so little to do … tracking is all done by computers … and they don’t get big bonuses thankfully.

Ok I’ve added my name to support the Which campaign because I believe the result will be a better pension deal for employed people including, if I understand the campaign’s aims correctly, self employed people. So that takes care of a good section of the community. However, I am interested to know if the campaign also aims to limit the management charges for pension pots that remain invested following a person’s retirement at whatever age and for whatever reason. I’m thinking here primarily of the very poor performance of pension funds in general a few years ago during “the financial crisis” the effect of which crisis we are still seeing reflected in lower values for our pension pots today than they might otherwise have been without the crisis. Personally I’ve retired and now just about manage on very modest pension payments from schemes of former employers plus recently my OAP. But the pension pot I contributed to with my last employer I have left untouched since I was made redundant (at 63) in the hope its value will pick up with improving financial market conditions before I’m forced to convert it to an annuity. Following redundancy/retirement I’ve not been confident that management fees for this untouched pot are still being properly regulated by the company I worked for in the same way they would be if I still worked for them and was still contributing. Obviously I don’t want management fees associated with this untouched pot to be at a level that they increase the risk I’m already taking from keeping it untouched in the hope of seeing its value rise before converting to a much needed annuity. I could be wrong but I’m thinking there will be many folk who have reached retirement (or been made redundant with retirement age approaching) with pension pots still invested to try to recover value lost during the financial crisis. Therefore I would like to think the Which campaign will be aiming to also limit management fees for such pension pots that have been left untouched following redundancy/retirement in the hope its value increases (as well as annuity rates). But is the Which campaign aimed also at limiting the management fees for such pension pots and if not can they be?

Hi BC43, thanks for your support! Yes, our campaign calls for a charge cap on all existing workplace pensions, in addition to those newly set-up for automatic enrolment – so it would apply to your pension from a previous employer. You are right to highlight this issue as we agree with you that employers may have less knowledge, time, resources or inclination to monitor the pensions of ex-employees. We are also calling for a ban on penalty charges as some pension companies up the charges in your pension when you become an ex-employee such as if you change jobs or when you are made redundant. You could ask the pension company what the current management fees are, whether they increased when you left the company and where it is currently invested. You may also wish to consider taking independent financial advice, particularly when you come to convert the pension into an annuity as it is very important to shop around for the best rate and declare any health problems.

We will convey your views to the DWP, but if you did want to spend time responding to their consultation then you can send an email to:


The full details of the DWP consultation are here and it closes on 28th November.


Thanks Piers. It helps knowing your camapign will include for my own pension scenario that you have responded about and I feel your response will likely help others with similar scenarios (i.e. pot remaining invested to risk catching up lost gains due to financial crisis but no longer contributed to following retirement/redundanacy but also to risk that annuity rates will improve). Its a right pickle – not a great deal of point leaving invested for the pot to increasse if annuity rates go down rather than up and both may go down. I just wish there were a pension industry single or double word term describing that scenario (the one in brackets) as regular use of it by affected folk might then more readily increase awareness of the issues that created the scenario (including market crashes, unregulated management fees etc) and thus help others see it coming and take evasive action or at least make alternative provisions in time to make for a happy retirement. I will certainly look at the links and give my views to DWP. Thanks again.

Think penalty charges should be outlawed. If fund is not performing then the loss of your cash to another scheme should be their penalty (boot on the other foot?)? Just a question, what happened to all that tax relief Gordon Brown sliced off? Did it go to fund the Ponzi scheme (state pensions). All pensions should be properly funded and invested. A slow change over should take place to equalise all pensions, but can it be done??

Last year our defined benefits pension (were the employer effectively pays the fees) was closed to new contributions and we are now in a defined contributions scheme (were the employee pays the fees) Interestingly the fees doubled.
So what do you get for your fees? A choice of 8 funds (4 Legal & General, 3 Fidelity and 1 bearing the name of our parent company) to invest in. One of these funds charged a fee (1% i think) and the only thing it did was invest 100% in another fund, run by the same company, which also charged a fee?.

Martin Fannon says:
14 November 2013

I personally have no qualms about fees of 1 -2% if those fees are based on profits made on the whole fund above the level contributed. It is very galling to see your pension fund decrease because of poor investments and the fund managers still getting their percentage for losing you money. A few years ago my pension shrunk by over £7,000.00 on the previous year not including the amount I contributed over that period. It didn’t take me long to switch to another company.

Two points the government could deal with to ameliorate the situation-
First, reverse G.Brown’s removal of the tax relief on the dividends paid by pension funds.
Second, with interest rates artificially lowest ever, income from savers’ investments are also lowest and, as most are taxed at 20%, are virtually worthless. Raise the base rate immediately.
(Industry can get relief from the exchequer and house buyers should.pay realistic interest as pensioners did.in the past).

Terry, it’s one way of looking at it. However, the tax relief on dividends would need to be replaced with tax from somewhere else, the relief for industry would need funding from other taxes, and raising mortgage rates would increase rents as well as purchasers’ repayments, giving less disposable income to help the economy revive. Inflation would likely increase to offset savers gain in interest.
Essentially we need to become more efficient as a producing nation so we can sell goods and services to other countries. This wll increase the country’s wealth which will feed through into better real incomes and reduce our deficit.

Martin88 says:
17 November 2013

A short story. I started paying into my industry pension scheme when I was 20 years old. I put in AVC`s for 6 years but left the job when I was 39 years old and moved to an employer that was not registered with my pension provider. I was told not to invest in the stakeholder pensions they were offering me and could not find a better one than I just had to leave. I was working hard and maxed out my ISA limit each year. I am now 51 and self employed and too late to pay into another pension to build a big enough pot to make it worth while.

The governments of the last 40 years have made it virtually impossible for the working man who wants to better themselves and move employers or go self employed. We should have been able to continue paying into the first pension pot and stand a chance of a decent retirement pot, but now the government in 15 years will have to top up my pension pot. By the way, I have and IFA friend who is now looking at it again but I am not holding my breath.

Catch 22 save with ISas but you need to draw on them when you retire. Great keep self and wife well off until you may end up in a nursing home and you have to use nearly all to pay NH fees. Leaves partner out in the cold. If you are not made to pay into a pension and are on very low wages how are you to fund yourself? Living wage and 0 hours contracts will leave the tax payer paying for self and those unfunded. Whilst companies reward their shareholders!