Keep your hands off our pensions

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 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.

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.

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.

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.