Pension Rip-Off

Loughton_Monkey

EdGasket wrote: »

I can easily get 2.5% on cash with instant access from National Savings.........Why should I have to take unwanted investment risk as the only hope of covering pension management charges and actually getting some return on my money?

Phew!

Having read the whole thread, the only thing I can say in your defense is that you are far from alone in your superficial perceptions of personal finance. I'm sure there are thousands like you, on barstools in pubs up and down the country, talking about pension rip-offs without any basic knowledge of the real world.

But what makes this thread stand out is your apparent unwillingness to understand what is being said.

First of all, it is not 'easy' to get 3%-ish on cash. For cash-rich pensioners, we have to work pretty hard, maybe locking it up for a year or more, maybe using 'bonus' Internet accounts for 12 months before having to transfer it all to the next marketing deal, keeping your exposure to below £85K per institution etc....

But it takes the biscuit to imagine that a fund manager can take £100 million of our cash and make 'real' returns from it in the money markets. Market interest rates hover around 0.5% for God's sake! Do you expect him to get on the Internet and open a £100 million new Santander e-Saver Issue Number 5?????

You have been told, but seemingly not understood, that you chose a money market account and that this is not even a 'deposit' fund. Even if it were a deposit fund, tell me where the fund manager could 'deposit' at significantly more than 0.5%?

If you don't want money in volatile investments then put your money directly on the high street/Internet and get your 3%. Fine. If you want the prospect of real growth in the longer term, then use 'proper' investment funds.

But the heading of this thread is "Pension Rip-off". Try to understand that 'pension' means a devise that gives you extra money (in the form of tax relief) in return for constraints on how you access the money. It has nothing whatsoever to do with the funds in which you choose to invest.

The guys on the office floor in any fund house are taking literally £millions every day and throwing it into shares, bonds, property, whatever. They may be good at getting a good return. They may be very bad investors. Yes, it is theoretically possible that they are so incompetent that the whole fund could rightly be deemed a "rip-off". But please try to understand that these guys probably don't know what proportion of that money came to them through pension plans, or through Stocks & Shares ISA's, or from ordinary investors, or from institutional investors. Even if they did know, they would not give a monkey's cuss. Only the guys in the back room admin need to know in order to account slightly differently.

Funds are generally not rip-offs. Generally they do exactly what it says 'on the tin'. Some do it well. Some do it not so well. They have no incentive whatsoever to do badly, so if they do, it's a performance issue. Not a rip-off issue.

Equally, the HMRC rules on pensions are not a 'rip-off'. They give you very good tax incentives. In return, they allow you to keep some of this with your lump sum, but otherwise defer clawing back tax. If you don't like the rules, then don't use that wrapper. Use ISA instead. So simple a child of 10 could understand. You have a choice. If you don't like the pension rules, simply invest exactly the same outside the pension wrapper.

Don't choose the tax wrapper and then call it a rip-off.

EdGasket

Pension Rip-Off:
1) 10 mins on the phone to financial advisor for which he received £3,600 commission (I have written evidence of this from the pension company). Rip-Off
2) Savings tied up until retirement which either have to be put into risky investments or Cash funds invested in toxic assets or which have so much management charges applied that they make a loss. Rip-Off
3) At the point of retirement you then have to pay more money to a financial advisor to arrange a drawdown or favourable annuity because a lot of providers will not deal directly with the public. A colleague was recently charged over £4,000 for a drawdown to be arranged. Rip-Off

Yes, with hindsight I would stick to an ISA because for anyone who only pays tax at the basic rate, I would not recommend a personal pension.

rpc

EdGasket wrote: »

1) 10 mins on the phone to financial advisor for which he received £3,600 commission (I have written evidence of this from the pension company). Rip-Off

Then you shouldn't have agreed to it. You paid his fees and agreed that payment, you could have made an alternative arrangement. Or did you believe this was being done for "free"?

2) Savings tied up until retirement which either have to be put into risky investments or Cash funds invested in toxic assets or which have so much management charges applied that they make a loss. Rip-Off

If you have made a poor choice of investments, that is not the fault of the tax wrapper.

IronWolf

The only type of cash fund that is safe is one invested in short term AAA rated government bonds.

The yields are poor (currently and probably in future) but management charges are usually very low.

It doesn't surprise me people didn't know what they were investing in with this fund, I consider myself pretty clued in when it comes to investments and that took a lot of work, how they expect the general public to know the difference between 'cash funds' which are invested in government bonds, and cash funds invested in mortgage backed securities I don't know.

EdGasket

rpc wrote: »

Then you shouldn't have agreed to it. You paid his fees and agreed that payment, you could have made an alternative arrangement. Or did you believe this was being done for "free"? If you have made a poor choice of investments, that is not the fault of the tax wrapper.

I certainly did not agree to it and if I had known, I would not have gone ahead on principle. It was commission paid to the advisor by the pension provider for pushing my business their way. I had no idea until the paperwork arrived just how much that phone call had earned the advisor. How can this level of charge be justified? No doubt one of the reasons that the annual management charge is so high.

My choice of investment is limited to those in the SL Stakeholder list; only 2 of which purport to be 'Safe Havens' but as I keep explaining are either in toxic assets or consistently lose money. I have no other choice except to face more charges transferring to somewhere else which will probably be no better. Hence my disappointment with the pension industry that continually bleeds away my capital at every step of the way.

Linton

EdGasket wrote: »

Pension Rip-Off:
1) 10 mins on the phone to financial advisor for which he received £3,600 commission (I have written evidence of this from the pension company). Rip-Off
2) Savings tied up until retirement which either have to be put into risky investments or Cash funds invested in toxic assets or which have so much management charges applied that they make a loss. Rip-Off
3) At the point of retirement you then have to pay more money to a financial advisor to arrange a drawdown or favourable annuity because a lot of providers will not deal directly with the public. A colleague was recently charged over £4,000 for a drawdown to be arranged. Rip-Off

Yes, with hindsight I would stick to an ISA because for anyone who only pays tax at the basic rate, I would not recommend a personal pension.

Perhaps you should have asked the IFA to give you some advice. I cant see a 10 minute call being appropriate. Really this sorry saga is a warning to all people thinking that they can DIY - make sure you really know what you are doing. Get it wrong and you easily lose out to a far greater extent than the cost of any IFA charges.

Now you are advocating ISAs. Strange as much the same funds are available in pensions as in S&S ISAs (and the former provides a 25% tax free lump sum).

Perhaps you are planning to put all your money into cash ISAs. If so, another wadge of potential income lost.

Surely you must have learnt the lesson - pay for some proper advice or you may spend your retirement in poverty complaining again to anyone bothered to listen how you were swindled out of your moneys by the evil financial services industry.

Linton

EdGasket wrote: »

......
My choice of investment is limited to those in the SL Stakeholder list; only 2 of which purport to be 'Safe Havens' but as I keep explaining are either in toxic assets or consistently lose money. I have no other choice except to face more charges transferring to somewhere else which will probably be no better. Hence my disappointment with the pension industry that continually bleeds away my capital at every step of the way.

The fund you chose WAS a safe haven, the amount you lost was almost nil. Almost any other fund would have had a chance of losing far more. If you are some way from retiring, you dont want to be in safe havens. You need capital growth. For capital growth you take short term risks in order to gain from the long term trends.

If you had chosen the default fund for the SL stakeholder pension, the SL Managed Pension Fund, you could have seen more than 40% growth in the past 4 years.

EdGasket

Ref. "f you had chosen the default fund for the SL stakeholder pension, the SL Managed Pension Fund, you would have seen more than 40% growth in the past 4 years. "

That is only because you have 'cherry picked' the timeframe. Over 5 years it has increased in value by 8%; hardly groundbreaking stuff!
Check the performance:
http://webfund5.financialexpress.net/stanlife/sl_fund_popup.wsp?unit=STKM

A decent cash investment should have done just as well over 5 years if the charges were not so excessive as to completely wipe out all gains.

Linton

EdGasket wrote: »

Ref. "f you had chosen the default fund for the SL stakeholder pension, the SL Managed Pension Fund, you would have seen more than 40% growth in the past 4 years. "

That is only because you have 'cherry picked' the timeframe. Over 5 years it has increased in value by 8%; hardly groundbreaking stuff!
Check the performance:
http://webfund5.financialexpress.net/stanlife/sl_fund_popup.wsp?unit=STKM

A decent cash investment should have done just as well over 5 years if the charges were not so excessive as to completely wipe out all gains.

Looks like you are cherry picking - your initial graph showed 3.5 years. Why are you choosing 5 now?

Did you put in a lump sum exactly 3.5 (or 5 or whatever) years ago or was it a steady monthly payment? If the latter the % increase would have been much higher than the crude end to end comparison as you would have bought a lot of shares when the stock market was very low during the height of the credit crunch.

As to the comment on a decent cash investment - suggest you read Loughton Monkey's contribution again. Charges have nothing to do with it.

coastline

No expert myself...but I'd be surprised if many people do really understand the pension industry...its one of those areas where in the past people trusted their workplace or an insurance company they'd heard of...eg the Pru..
Even now if an IFA explained about spreading your money in various funds then I guess people would go along with it....thinking their homework was done...
I've had a final salary pension so I've never had the experience of advise...which leads me to a question...
When you are asked your attitude to risk how do you know the answer...for example if I was 20 yo then I'd want to be 100% in equities given the 40 years to make your pot....but what if you say you don't like that much risk ...will you end up in a managed fund...maybe I've just answered the question..