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MSE News: Warning over charges that 'wipe millions off pension pots'

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MSE News: Warning over charges that 'wipe millions off pension pots'

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MSE_GuyMSE_Guy MSE Staff
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This is the discussion thread for the following MSE News Story:

"Consumer Focus has urged the FSA to stop advisers telling clients to move to pensions with higher charges or higher risk ..."
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  • edited 20 July 2011 at 5:26PM
    brewerdavebrewerdave Forumite
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    edited 20 July 2011 at 5:26PM
    Now moved to corect forum!!
  • jamesdjamesd Forumite
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    I'm sure that Hargreaves Lansdown was very pleased to be able to disagree in this case.

    Did you know that Hargreaves Lansdown receives around 0.8% of the sum invested in annual commissions, between two and three times the commission normally paid to investment platforms? It receives so much because it takes a commission that combines the platform commission (normally 0.2-0.3%) and the IFA ongoing advice trail commission (normally 0.5%) even though it provides none of the ongoing advice that an IFA would be expected to provide for that 0.5%.

    Normally a consumer would have the option of paying an IFA a fee of a few hundred Pounds to eliminate the ongoing annual 0.5% commission payment if they were buying a platform with no ongoing advice like that offered by Hargreaves Lansdown.

    Because of its high charges it's a company that has one of the largest vested interests in there being no change in this area.

    To illustrate the effect of the high charges I used the Hargreaves Lansdown pension calculator. I started out with these entries:

    Born 1/7/1985
    Male
    Retirement age 65
    Personal contribution of £200 a month

    With the annual fund charge set to 1.5% to simulate Hargreaves Lansdown charging the final pension pot size was £163,867 and the pension income £7,148.

    With the annual fund charge set to 1% to simulate buying from a platform charging the more normal 0.2-0.3% the final pension pot size was £184,126 and the pension income £8,031.

    So using an expensive pension provider like Hargreaves Lansdown would cost the pensioner £900 a year in income or 11% of their pension pot. For exactly the same investments and contribution levels.

    That's a big loss for not investing via a place that offers a better ongoing deal. But consumers are notoriously reluctant to pay IFAs a fee even if it makes them better off long term.

    Hargreaves Lansdown can be competitive for fairly small amounts of ongoing contributions or lump sums, or for those who use the HSBC range of tracker funds that it offers. I've seen cases where it could be competitive compared to other expensive SIPP pensions at close to £80,000, but that's comparing with other expensive products, not cheap ones. It's still a superb company with superb marketing and excellent service levels. Just not cheap and with remuneration that isn't well disclosed.

    I recognise that this came from another source, so the feedback from Hargreaves Lansdown wasn't selected by MSE.
  • The other issue with HL is that they produce a list of 'top funds', from memory about 150 are on it.

    It would be interesting to map the fund managers who pay the highest rebates with the 'top funds' list.

    Not saying there is any bias here, just that at the moment HL are far from transparent.

    The Canny Saver

    PS Peter Hargreaves is also notoriously anti structured products, wonder if this is because they can't be held in his SIPP (which really isn't a SIPP, funds and shares only, no property, no external deposit accounts etc)
    Always looking for a good deal on my savings, generally risk averse, but always interested in new ideas and new ways of doing things.
  • edited 20 July 2011 at 5:54PM
    2sides2everystory2sides2everystory
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    edited 20 July 2011 at 5:54PM
    Yet again we outsiders are being drip fed an 'insider' pan-industry dissembling response to what has long been the next major scandal that will rock the financial services industry.

    This is no more about "bad advice" at PoS than the endowment scandal was about "misselling".

    How long is it since Panorama drew very uncomfortable comparisons betwen performance of Dutch pension funds (pound for pound) versus UK? Takes a while to pick up speed with a whole rotten industry pulling and spinning the other way.

    Any effective regulator needs to readjust their sights much higher to the boardrooms where cartels are designed and managed.
  • edited 20 July 2011 at 7:10PM
    dunstonhdunstonh Forumite
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    edited 20 July 2011 at 7:10PM
    The research has already been criticised for using old data and a number of assumptions without any fact.

    http://www.moneymarketing.co.uk/pensions/what-a-shoddy-piece-of-pension-switching-research/1034871.article
    How long is it since Panorama drew very uncomfortable comparisons betwen performance of Dutch pension funds (pound for pound) versus UK?

    And what a joke that was as the UK can offer just as cheap (or cheaper pensions) in a full package (whereas Dutch didnt).
    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.
  • StevieJStevieJ Forumite
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    dunstonh wrote: »
    The research has already been criticised for using old data and a number of assumptions without any fact.

    Are you saying the research is wrong, in your experience?
    Government: "Should we get a pet?" 52%: "Yes" Government: "OK, we'll get a cat" 1/2 of 52%: "Oh no, I hate cats. I wanted a dog."
  • edited 20 July 2011 at 7:15PM
    dunstonhdunstonh Forumite
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    edited 20 July 2011 at 7:15PM
    StevieJ wrote: »
    Are you saying the research is wrong, in your experience?

    Effectively yes. Consumer Focus looked at 31 examples of client correspondence emanating from two IFA networks over a 10 year period.

    How is that reflective of the millions of pension transactions that are carried out each year?

    The report rehashes the findings of the FSA’s report into pension switching in 2008 and follow-up work in 2010. The 2008 report found that 16 per cent of files from 500 cases involving 30 firms, including IFAs, multi-tied and tied firms, showed poor advice. We know this 16 per cent figure was skewed upwards by the inclusion of at least one poor performing high-street bank. For some reason the Consumer Focus report only focuses on the behaviour of IFAs and leaves the false impression the FSA work was only referring to IFAs.


    Also, lets look at what they are asking:
    Lobby group Consumer Focus sounded the alarm today, asking the Financial Services Authority (FSA) to take action to stop advisers telling their clients to switch to pensions that carry higher charges or that carry greater risk.

    So, lets say you are in a 1% stakeholder and have built up a big enough fund now where you want to utilise more investment areas that a stakeholder cannot do. Such as emerging markets, natural resources etc. They cost more at around 1.5%. This lobby group are saying that your adviser shouldnt tell you to use them.

    Do you want to be told that you cannot utilise investments with greater potential but higher cost because some lobby group doesnt understand investments and feels cost is the primary driver? Isnt that nanny state?
    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.
  • zagfleszagfles Forumite
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    jamesd wrote: »
    I'm sure that Hargreaves Lansdown was very pleased to be able to disagree in this case.

    Did you know that Hargreaves Lansdown receives around 0.8% of the sum invested in annual commissions, between two and three times the commission normally paid to investment platforms? It receives so much because it takes a commission that combines the platform commission (normally 0.2-0.3%) and the IFA ongoing advice trail commission (normally 0.5%) even though it provides none of the ongoing advice that an IFA would be expected to provide for that 0.5%.

    That's the problem with the current silly situation where advice charges are wrapped up in the product charges. But that is changing next year, when consumers will be able see what they are paying for advice or platform.
    Normally a consumer would have the option of paying an IFA a fee of a few hundred Pounds to eliminate the ongoing annual 0.5% commission payment if they were buying a platform with no ongoing advice like that offered by Hargreaves Lansdown.

    Yes but often consumers aren't told about this - and the IFA ends up pocketing the whole initial charge plus trail commission despite doing no ongoing work. I've had UTs and a pension on this basis in the past before I realised this...
    Because of its high charges it's a company that has one of the largest vested interests in there being no change in this area.

    To illustrate the effect of the high charges I used the Hargreaves Lansdown pension calculator. I started out with these entries:

    Born 1/7/1985
    Male
    Retirement age 65
    Personal contribution of £200 a month

    With the annual fund charge set to 1.5% to simulate Hargreaves Lansdown charging the final pension pot size was £163,867 and the pension income £7,148.

    With the annual fund charge set to 1% to simulate buying from a platform charging the more normal 0.2-0.3% the final pension pot size was £184,126 and the pension income £8,031.

    You say "more normal" platform - can you give an example please? Are their other charges the same as HL, eg no annual fee, no initial charges when buying funds, no other fees while investing if invested in funds paying them trail commission? With a similar large range of funds to choose from?
  • edited 21 July 2011 at 12:04AM
    2sides2everystory2sides2everystory
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    edited 21 July 2011 at 12:04AM
    dunstonh, I think that rather than trying to debunk the suggestion that some European states have got it right compared to UK, we might first analyse why the BBC Panorama team formed the impression in the first place.

    Clearly if you go to Netherlands or Denmark or Norway Sweden even united Germany, you don't find hoards among the population concerned about what is happening to their pensions on a daily basis like us in the UK.

    I can't base it on any firm research but it seems a fact that the (ok north) Europeans I know feel relatively secure about retirement and pensions, and I don't think they feel ripped off. They have very established respected unions in some of those states who take a direct role in the pension arrangements I think, and excellent coalition government which seems to work with few surprises. There is also something of a brake on ruthless get rich quick merchants, mostly via taxation in work and in retirement I guess.

    They also are perfectly aware or more so of the general risks of another recession, but they don't seem to be headed for any abyss worse than ours (far from it - they usually just have to witness the spectacle of us making a faff of it and seem to routinely avoid many of the mistakes we constantly blunder into). They seem confident that they have the technology to bridge any abyss, whereas they see us constantly scrabbling in disarray in facing the present let alone the future, with laughable scandals in government, constant other distractions in the form of wars and in diplomatically still trying to punch above our weight whilst (failing to?) look after economic stability at home, or creation and maintenance of real jobs as opposed to part-time, zero hours, Polish potato picker roles, with the corresponding lucky to have the bartender job joke employment statistics. We have very debateable true wealth creation, and protection of the real vale of our people's existing wealth in a way that causes them to save and invest in quality long term assets has been completely abdicated lately; indeed all these imperatives seem relegated to some very manana idea of priority. As a result many of us feel daily we are surviving hand to mouth with a need to constantly look over our shoulders to safeguard existing arrangements from cannibals, and then back again at every line of the Ts & Cs of anything new to avoid the constant threat of opportunist (spiv) rip off in the UK.

    OK the north Europeans have had a spate of minor bank failures and have a lot to think about right now in deciding whether they will bail out the Eurozone, but their bank failures rarely make our headlines or stay news for more than a week at home because their governments thus far seem able to contain it all and keep everything running business as usual.

    There does seem to be a much more robust level of confidence in the future just across the Nordsee.

    Are they riding for a fall? Or just marvelling at us as fools?
  • edited 20 July 2011 at 9:05PM
    dunstonhdunstonh Forumite
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    edited 20 July 2011 at 9:05PM
    we might first analyse why the BBC Panorama team formed the impression in the first place.

    They largely made up figures (not kidding) and presented the information in a sensationalist manner.

    Basic errors, such as taking future money figures and presenting them in todays terms are schoolboy errors. Since 2001, the UK benchmark for packaged pensions has been 1% p.a. Panaroma use 1.5% in their examples. You can buy pensions in the UK as low as 0.2% p.a. So, in effect, they picked a figure 50% higher than the benchmark and presented that as normality.

    One of their case studies had a woman complaining about pensions but she didnt even have any pensions as she had relied on property. Another was a person that was paying a woefully small amount and was complaining it wasnt paying him a bigger income. The most common issue in the programme was people not happy they were getting more but then they were not paying enough in to begin with.
    Clearly if you go to Netherlands or Denmark or Norway Sweden even united Germany, you don't find hoards among the population concerned about what is happening to their pensions on a daily basis like us in the UK.

    Says a lot about our society and the lack of individual responsibility and willingness to understand and possibly the lack of education. It probably has a lot to do with media standards in the UK as well.

    Things are not perfect but you can say that about anything. However, if you present extremes as the norm then it clearly does no-one any favours and if the research is flawed and the reporting that goes with it doesnt show those flaws but just repeats the research, then what is the value of journalism.
    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.
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