RSA report damns the great UK pension fund rip-offPosted on 18 July 2012 with no comments from readers
Ever wondered who is paying for the shiny shoes and flash cars beloved by your pension adviser and the pension fund managers? Of course you always knew it was you. But a new RSA report has revealed that hidden fees can almost halve the value of your pension in the UK .
A 12-month study found that nine out of 10 pension fund managers fail to warn about these fees and noted that clients were routinely denied much simpler pension plans, presumably because they paid the managers less in fees.
In the go-go stock market boom years it was easy for such fees to be almost unnoticed as ever rising markets delivered performance that made pensions look a good investment. In the UK there are also tax breaks to encourage people to save for their retirement, indeed that is the backbone of the pension system.
But the report said pension charges accounted for up to 40 per cent of typical retirement savings, so that probably almost offset the tax saved in making contributions for many workers. It said the UK charges were excessive. In the Netherlands pensioners can expect a pension worth 50 per cent more than their British equivalent because the country has far simpler charges.
In the UK the number of people contributing to personal pensions is down from 400,000 to six million since 2008 and a new code of conduct was introduced for the sector a year ago. Pensioners have also been bitterly disappointed by annuity rates since then, the price of the Bank of England’s manipulation of interest rates to keep the economy afloat.
British expatriates living abroad get no tax breaks and so for them paying into a UK pension has been an even worse deal. A simple savings plan – bought without paying fees to some financial intermediary – would probably have done better.
It’s another symptom of the rotteness of the financial system with an overblown pension fund industry that pays itself far too much for underachievement. The need is to get back to basics, simple systems and lower salaries.
Whether this can be achieved without another damaging blow-up in the global financial system is less certain. It’s hardly a wonder that so many people have been dropping out of pension schemes.