MSE News: Hidden pension costs must be revealed, Government says

"Pensions Minister Steve Webb says it's crucial employers' defined contribution pension schemes are transparent..."
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Hidden pension costs must be revealed, Government says

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  • "The Government has said someone who saves £100 a month over a typical working lifetime of 46 years could lose almost £170,000 from their pension pot with a 1% charge and over £230,000 with a 1.5% charge."


    These numbers are clearly wrong...


    Someone saving £100/m over 46 years would only save £55,200 ...more like £1,700 and £2,300 lost by the time we factor in employer contributions...
  • VT82
    VT82 Posts: 1,079
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    I'm fairly sure this is at least the third time they've reported those numbers, and each time, I've thought they were clearly wrong.


    A quick calc, assuming 5% growth, and no inflation assumed(seeing as the ridiculous numbers they express suggest they are 'real' values anyway), gives me a figure of £25k in fees at 1% and £34k at 1.5%.


    Even if you assume the £100 is really £200 due to employer matching, and assume a very large 8% growth, I still only make it £95k for 1% fees.


    Big numbers obviously, but not even close to the ridiculous ones in the article.
  • i think they mean the effect of the charges on the final pot size, not the amount paid in charges.

    i can get roughly their answer by assuming £200 per month (including employer contribution, as already suggested), and 6.5% return before charges (which is indeed a bit high for a projected real return, though not impossible):

    £200 per month for 46 years, with 6.5% growth, gives a pot of £654,043.

    with 5.5% growth, to allow for 1% charges, it gives a pot of £482,436, which is £171,607 less - so that's the effect of the charges.

    with 5%, to allow for 1.5% charges, it gives a pot of £415,727, in which case the effect of charges is £238,316.
  • dunstonh
    dunstonh Posts: 115,912
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    I'm fairly sure this is at least the third time they've reported those numbers, and each time, I've thought they were clearly wrong.

    It is the effect of charges over the whole term of the policy. It is shown in future money terms (i.e. £70,000 over the term of the policy does not have the same spending power as £70,000 in todays money). However, it is a very common error in the media (and now possibly the Govt) to refer to that in todays terms.

    The effect of charges takes the actual charge and then invests it at x%pa and compounds it over the term. It then gives the total of the charges and the compounded growth on those charges and because it is projecting forward over a long term, the figure tends to be quite big. However, it must not be viewed in todays terms because it is taken in the future when the value of money is eroded by inflation.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Perelandra
    Perelandra Posts: 1,060 Forumite
    I find these statements by the government to be incredibly frustrating. They:

    1) Overemphasise the problem. The proportion of pension funds that charge 1%/1.5% is low.

    2) They seem to be using "future money" values, which vastly distort the real impact.

    3) They don't talk about the assumptions that have gone in- which seem to be on the high side wherever possible.

    Essentially, it's very much worst-case.

    As a result of messages like this, confidence in pension schemes is being eroded still further- I've had to convince a number of friends/colleagues who are convinced that every single pension option is a complete ripoff, and that they'd be better off investing in gold/coloured diamonds/bitcoins/self select funds or whatever takes their fancy.
  • Pincher
    Pincher Posts: 6,552
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    I didn't know until recently, that Catholic priests and eunuchs are designed to not have heirs, which will motivate them into acquiring personal wealth and power, in order to extend their genetic lineage.

    Assuming this works, the solution is to create a class of neutered fund managers, with Vasectomy and Fallopian tubes tied. Selected from pre-puberty, they are trained and conditioned to believe in protecting shareholder value at all costs. Having children obviously will disqualify them and suitable punishments dispensed.

    Michael Critchton take note, I have first dibs on the novel based on a defrocked fund manager who falls in love with Nichole Kidman, who secretly has a love child by her.

    Financial advisers are always going to be morally bankrupt salesmen, looked down upon like estate agents, so if people believe them it's their own fault. Traders are supposed to be alcoholic mysogenistic gamblers, so let them get on with what they are best at. Anybody can be bank clerks and call centre staff, who can do no harm.
  • dunstonh
    dunstonh Posts: 115,912
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    Financial advisers are always going to be morally bankrupt salesmen, looked down upon like estate agents, so if people believe them it's their own fault

    Thank your for your unqualified judgement of me and 20,000 odd others that you have never met.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • mania112
    mania112 Posts: 1,981
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    Pincher wrote: »
    Financial advisers are always going to be morally bankrupt salesmen, looked down upon like estate agents, so if people believe them it's their own fault.

    Always.

    And Michael Critchton [sp?] is dead you heartless so and so.
  • Pincher
    Pincher Posts: 6,552
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    dunstonh wrote: »
    Thank your for your unqualified judgement of me and 20,000 odd others that you have never met.

    I'm think of Richard Zafarin of Merchant Investors, who was truly the Prince of Darkness in person. Good looking chap. I showed him my spreadsheet of how they intend to steal my contributions from the first one and half year in the form of initial units, which will be cancelled quietly over the next 25 years. He looked up from the spread sheet, smiled, and said: "Now that you know how we make money, let me show you how we can make money for you."
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