Pension scandal: one in four savers faces rip-off fees

Pension scandal: one in four savers faces rip-off fees

1024 683 Ian Brewer

Auto-enrolment has helped drive total membership of occupational pension schemes in the UK to a record 39.2 million in 2016, according to the latest figures from the Office for National Statistics.

The jump represents an increase of 17.1% compared with 2015 when the total was 33.5m. Active membership of occupational pension schemes was 13.5 million in 2016, split between the private (7.7 million) and public sector (5.7 million).

However, an article done just over 18 months ago reckoned 1 in 4 people were getting ripped off by charges.

Since the article was written 18 months ago the UK government has introduced a 1% cap if anyone aged 55 or over wishes to take advantage of accessing their pension under the Pension freedoms.

But scandalous charges and penalties still prevail for anyone wishing to move their Pension Fund from their existing provider to another before the age of 55.

Here is the article we wish to share with you.

The Article

By Dan Hyde, Consumer Affairs Editor Daily Telegraph 17 Dec 2014

Major inquiry finds more than a million people who have saved £26 billion in pensions are exposed to ‘high’ and complex fees that deplete their retirement funds.

More than a million savers are subject to rip-off charges that will leave them deeply out of pocket by the time they retire, a report has found.

A year-long inquiry into the pension plans offered to staff by companies found savers were “exposed” to a web of 38 different fees that depleted their funds.

Researchers found almost a quarter of all the money held in workplace pensions run by insurance companies – or £26 billion across 1.5 million separate pots – was at risk.

In some cases, savers were paying more than three percent a year in annual fees. Calculations showed these people stood to lose as much as a two-thirds of their money to fees over the course of their lives.

Gina Miller, the founder of the True and Fair campaign against rip-off charges, said: “When we know who is burgling our homes, we send in the police and bring the robbers to trial.

“We know who are ripping off hard-working savers, so we need official investigations, Treasury enquiries and convictions for miss-selling – this is daylight robbery.”

In September 2013, regulators shamed the pension industry for charging savers with older pension plans more than those who enter new contracts.

From April next year, the Government will ban charges of more than 0.75 percent when savers are enrolled into a pension. But savers in older schemes are not protected.

A year ago, the Office of Fair Trading (OFT) ordered an independent inquiry into schemes set up before 2001.

Today the so-called Independent Project Board, which comprised regulators, consumer watchdogs and industry representatives, reported its findings. It collected data on charges for 3.6 million pension schemes run by insurance companies which were either put in place before 2001 or were suspected to have high charges.

It found:

• As much as £25.8 billion of pension savings were exposed to charges above one per cent; £13 billion was exposed to charges above 1.5 per cent; between £5.6 billion and £8 billion faced charges above 2 per cent; and around £900 million was “potentially” charged above three per cent.

• Savers who faced the “very highest” fees were subject to “complex charge structures”, in which monthly fees applied and deductions were made from savers’ contributions before they were invested in the stock market.

• Savers with small pots of less than £10,000 were more likely to face charges of three per cent or more. Around £700 million of the £900 million exposed to the highest charges were held by investors with just a few thousand pounds in their funds. Of this, over 90 per cent was held by savers who had stopped contributing, which implies extra monthly fees.

• An estimated 407,000 savers who joined schemes in the last three years could exposed to high charges. Around 178,000 could be exposed to charges over two per cent and 22,000 to charges over three per cent.

• Around £3.4 billion of money is trapped in rip-off pensions by exit charges. Savers faced penalties of 10 per cent on average if they tried to leave their schemes today, the report found.

• Savers over the age of 55 were also trapped by exit charges and would face hefty penalties for using the pension freedoms next April. Around £800 million was it risk if withdrawn next April.

There are around 5.5 million pension pots held by savers who have put money into schemes offered by their employers, called “defined contribution” plans. The analysis suggested at least one in four were subject to high charges. Some people might have held more than one pension, the report said, but it could not clarify the figures.

The inquiry found 291 different combinations of fees paid by savers in the schemes investigated. The researchers calculated the overall annual fees that savers were likely to face across 37 hypothetical scenarios.

The Telegraph has campaigned for many years against high pension charges, arguing that people who were diligently saving for their old ages were being short-changed.

The OFT report last year found a management fee of 0.5 per cent reduces the savings of a typical employee by 11 per cent over the course of a working life. However, a one per cent fee removed 21 per cent of the fund by the time the saver retired.

David Pitt-Watson, a pensions expert at the Royal Society of Arts think tank, said that if someone started saving at age 25 and died aged 85, the saver would lose a quarter of their money to fees if the average annual deduction was one per cent.

His calculations indicated that charges of two per cent would reduce the size of the saver’s eventual pension by half, while charges of three per cent would wipe two-thirds off the value of their funds.

“If the figures disclosed in today’s report are correct, some pension schemes are levying highly inappropriate charges and have sold these plans to hundreds of thousands of savers over the past three years,” he said.

“Fees of three per cent cannot be justified and the situation is out of control – the government act on bringing in a cap as soon as possible.”

He said the report could have underestimated the scale of the reduction to savers’ pensions as many of the highest charging funds were excluded from the study.

Mr Pitt-Watson also warned that hidden fees – such as the cost of a fund manager buying and selling shares on behalf of customers – were not counted in the total figures.

Huw Evans, deputy director general of the Association of British Insurers, said average pension charges were at their “lowest ever levels” for company schemes open to new members.

“This is an important audit which pension providers have worked hard to make happen,” he said.

“This report will help providers do more to identify and tackle those workers who could be impacted by higher charges and ensure the right outcomes for them.”

He defended the array of 291 charging “structures” used by the insurance companies that provide workplace pensions, saying

“no single charging structure provides the best value for all customers in all circumstances”.

“How much people save and for how long can have an important impact on charge levels, and investment performance and quality of scheme governance also matter,” he said

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