MSE News: Report calls for pension statements

Former_MSE_Helen

"People taking out a personal pension should receive bank account-style statements to prevent them facing hidden costs..."

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Report calls for pension statements

jamesd

You can read the Seeing through the British Pensions advocacy work on which this story seems to be based.

It's worth reading if you like bad jokes. It has rubbish like assuming that you can get the same investment returns without any trading costs as if you did pay trading costs.

There's reason to consider costs but remember that the most important factor is return on investment after all costs and that that is what is normally reported in performance reports. A high cost investment that delivers better performance is a good deal, a low cost one that delivers worse performance is a bad deal.

Consumerist

Well, all I can say is that I disagree with the numbers in their example scenario.

Imagine that a 25-year-old decides to save for a pension, so they can retire at 65 and enjoy a pension for the next 20 years. They set aside £1,000 each year, and raise that sum to cover inflation, which is 3%. They receive a 6% return on their money. That means that, by the age of 65 if they have no fees to pay, they will have a pension pot of £248,170. This in turn will create an inflation protected pension of £16,080 for the next 20 years. Now imagine that, each year, they need to pay 1.5% on the money they have saved. How much will that reduce the value of the pension? The answer is that it will be reduced to £9,900 each year. In this case, someone who pays no fees gets a 60% higher pension than someone who pays 1.5%.

Although I agree with their pot size at 6% return, according to my numbers the 1.5% pa charge reduces that pot by about 30%. i.e. someone who pays no fees gets a 43% (not 60%) higher pension than someone who pays 1.5%.

Has anyone else checked their numbers? Perhaps I just don't understand the situation.