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

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  • Loughton_Monkey
    Loughton_Monkey Posts: 8,913 Forumite
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    Like a lot of things, this is a complex issue. So complex, in fact, that I think anyone could use 'history' to prove either that pensions are indeed a great rip-off, or that pensions are indeed a 'clean', transparent, and 'straighforward' investment vehicle for modern wage-earners.

    My feeling is that the 'Man from Mars' would come down from above, and after research, conclude that pensions in the UK are indeed "in a mess" - to some extent for historic reasons.

    What we have is:
    • A myriad of prior legislation - some of which still 'matters' - which is difficult to comprehend for the layman [Section 32, GMP, Group pension, Personal Pension, SERPS buy-out, Stakeholder, minimum pension age, maximum age for compulsory annuity, lump sum limits, contribution limits, drawdown, flexible drawdown.........]
    • The current 'almost infinite' [and growing] range of funds, and now IT's ETFs' shares, property...... that consitute allowable investments for pensions.
    • A constant history of 'mis-selling' either on an 'intitutional scale' or a local scale over the last 20 years or so, resulting in....
    • Millions of pages of regulations, guidelines, commission disclosures, reductions in yield, compulsory illustration %ages, Ombudsmen, FSA...... almost always undergoing review [currently RDR for example].
    • A recent history of miserable performance - this millennium. Nothing particularly specific to pensions, but nevertheless this get's 'pinned' on the pension providor and/or sales organisation.
    • A fairly draconian system of charging - derived from stamp duty, highly paid admin staff [London/UK], 'bonus culture' bankers, fund managers, and back room boys, IFA's, Other sales people, platforms - all of which add up to a non-trivial 'guaranteed take' leaving the investor as the only risk taker in the whole food-chain. [Perversely, FS schemes ensuring that the employer is the only risk taker. There is nothing 'in the middle'].
    • A quite 'unsophisticated' public, in the main [OK, a subjective comment, but it manifests itself in the most 'careless' and 'ill-informed' behaviour amonst many in the savings market. What hope have these people in understanding even 1% of the above 'issues' properly?
    • The 'British Disease' of a woefully inadequate propensity to save in whatever shape or form - hoping that £20 a month for 10 years will provide a £10K pension per annum...
    • Constant change in State Pensions, that [not on purpose] tends to muddy the waters. NEST on the way......
    So against this background, who can think of a 'perfect' scenario to paint for the future? One that would also provide a smooth transition from current arrangements?

    To me, this is a classic case of "I wouldn't start from here....."
  • jamesd
    jamesd Posts: 26,103 Forumite
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    Now I've read the Consumer Focus paper I'm unimpressed by its contents. Notable is that it describes NEST as a low cost pension and wants people to be able to transfer into it, while this informed consumer describes it as a high cost pension and wants people to be able to not use it and transfer out of it. The difference may be that they are looking at higher cost products while I'm looking at lower cost products. I'm not impressed by that way of looking at things from an organisation that's supposed to have a consumer focus.
  • jamesd
    jamesd Posts: 26,103 Forumite
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    zagfles wrote: »
    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?
    Take a look at say Fidelity Fundsnetwork or Skandia. Both have an annual charge that is recouped by lower ongoing costs once about £15-18,000 is invested. The lower ongoing cost is the removal of the need to pay the 0.5% trail commission that normally goes to the adviser that in the HL case is kept by HL even though it isn't acting as an adviser. So while you might pay 1.5% for a fund from HL it'd cost more like 1% from those two.

    The lack of an annual charge for funds is a big part of what makes Hargreaves Lansdown a better deal for smaller pension pot sizes or when the HSBC tracker range is used. Once the value gets larger it becomes cheaper to pay the fee.

    If you want even better disclosure, but at higher cost, take a look at Transact. But it has a 0.3% switching fee and 0.3% platform fee. Both discounted for quite large pot sizes. It completely unbundles its charges from the fund commission, not taking even the platform commission from the fund.

    Because of the different ways that things are paid for I end up saying Hargreaves Lansdown is both expensive and cheap, depending on the specific case at hand.
  • Gorgeous_George
    Gorgeous_George Posts: 7,964 Forumite
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    jamesd wrote: »
    ...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.

    Paying circa 1% may not seem too bad if the fund grows at 10%. Using jamesd's numbers, a pot of £163,867 represents just 2.7%. Even the better return of £184,126 is only 3.2%.

    GG
    There are 10 types of people in this world. Those who understand binary and those that don't.
  • dunstonh
    dunstonh Posts: 116,655 Forumite
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    Now I've read the Consumer Focus paper I'm unimpressed by its contents. Notable is that it describes NEST as a low cost pension and wants people to be able to transfer into it, while this informed consumer describes it as a high cost pension and wants people to be able to not use it and transfer out of it. The difference may be that they are looking at higher cost products while I'm looking at lower cost products. I'm not impressed by that way of looking at things from an organisation that's supposed to have a consumer focus.

    I know its crazy. If you use the NEST initial charge, that is higher than my typical and I can be cheaper on an annual basis on a transactional contract. Its fair enough that NEST is looking at small values typically and that isnt adviser territory. However, you shouldnt go criticising one group as being expensive whilst suggesting an alternative which can actually be more expensive.

    Cost is not everything. If it was, we would all be driving cars that cost £6000 new.
    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.
  • gadgetmind
    gadgetmind Posts: 11,130 Forumite
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    jamesd wrote: »
    Take a look at say Fidelity Fundsnetwork or Skandia. Both have an annual charge that is recouped by lower ongoing costs once about £15-18,000 is invested. The lower ongoing cost is the removal of the need to pay the 0.5% trail commission

    I was advised to move a pension to Skandia in about 2005 by an IFA who reckoned that performance there would better my current pension company, and that it was worth the 5% up front fees, and the high annual fees, and his trail commission.

    Were better options available back then? If so, why wasn't such an option recommended to me.

    Anyway, I'm now moving it elsewhere, am probably doing it myself, and I'm keeping a keen eye on fees.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • gadgetmind
    gadgetmind Posts: 11,130 Forumite
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    jamesd wrote: »
    Because of the different ways that things are paid for I end up saying Hargreaves Lansdown is both expensive and cheap, depending on the specific case at hand.

    I use their ISA for funds, their Vantage Share Account for unwrapped investments in ITs and shares, and their SIPP for absolutely nothing as I just can't see any great advantages to it.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • jamesd
    jamesd Posts: 26,103 Forumite
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    gadgetmind wrote: »
    I was advised to move a pension to Skandia in about 2005 by an IFA who reckoned that performance there would better my current pension company, and that it was worth the 5% up front fees, and the high annual fees, and his trail commission.
    They have become a lot more competitive than that recently. I've been discussing some switching possibly to Skandia with an IFA on fee basis without ongoing advice, so mostly no initial charge and none of that 0.5% trail commission.
    gadgetmind wrote: »
    Were better options available back then? If so, why wasn't such an option recommended to me.
    I don't know. That was before the time when I was paying attention. Maybe dunstonh could say.
    gadgetmind wrote: »
    Anyway, I'm now moving it elsewhere, am probably doing it myself, and I'm keeping a keen eye on fees.
    What I'm doing is waiting for the release of the FSA's platform paper, due out soon. That may well shake things up a lot. Skandia is one provider who's been working on a new platform in association with that pending announcement.

    From what I recall of your pot sizes you might even find that Transact is better for you. On price it depends on what discount tier you end up with and how much is at each tier. But there's more to it than price. Though what really discourages me from using them is their 0.3% (if undiscounted) switching fee.
  • vbm
    vbm Posts: 116 Forumite
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    I am really surprised anyone could give this paper any credence. It is essentially a laughable piece of research that has quite rightly been lambasted.

    Read the link Dunstonh has posted.

    I don't mind when organisation criticise the pension industry, but when it so obviously flawed like this paper or the BBC documentary it boils my !!!!.

    The sooner people can start to understand that a pension is simply a tax wrapper and that providers do not operate a cartel.

    Shame that this article gets posted in this forum by admins when the reaction from anyone with any knowledge has been to treat it with deserved contempt.
  • gadgetmind
    gadgetmind Posts: 11,130 Forumite
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    jamesd wrote: »
    I don't know. That was before the time when I was paying attention.

    Yup, me too. What a difference 5-6 years makes!
    Skandia is one provider who's been working on a new platform in association with that pending announcement.

    So, my IFA told me, in my first meeting with him for 5 years (and even then it wasn't the same guy.)
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
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