MSE News: 'Rip-off' pension charges targeted by Government

dunstonh

Doesn't get away from the fact that fund management is highly profitable. Totally to the detriment of the consumer.

And other retail markets dont make a profit?

Did the government give any indication as to how they arrived at these enormous figures please?

I just obtained a dummy quote of real pensions using £100pm level for 46 years on basic pension/funds. Cheapest was 0.40%. Most expensive was 1.10%.

Cheapest had final fund value of £134,000 (3.90%) and with no charges at all it would be £151,000. So, total charges over the 46 years were £17,000
The 1% p.a. charged pension had final fund of £266,000 (7.00%) . With no charges it would be £355,000. A difference of 89,000.
I was able to find a 0.5% p.a. one with 7% projection. This had fund value of £329,000 with charges and £381,000 without. A difference of £52,000

Because providers all use different projection rates now, it is difficult to compare like for like. However, it is clear to see that a 1% p.a. pension using the old 7% p.a. growth rate resulted in only a difference of £89,000 due to charges. Nowhere near the Govt figure.

Also, it needs to be noted that that the it isnt £89,000 in todays money. That is £89,000 unadjusted for inflation. Using an inflation calculator between the dates of 1966 and 2012 (46 years), £89,000 in 2012 is the equivalent of £12,651 46 years ago. £89,000 is also not the charge. It is the charge if not taken and invested at 7% a year. Known as the effect of charges.

gadgetmind

dunstonh wrote: »

And other retail markets dont make a profit?

How many other retail markets try and help themselves to 25% of the money that you're saving for your old age?

The 1% p.a. charged pension had final fund of £266,000 (7.00%) . With no charges it would be £355,000. A difference of 89,000.

So, 25% for the guys in pinstripes and only 75% left for the punter. Sweet!

This is why I personally wouldn't pay 1%, find 0.5% expensive, and have a goal of 0.25%. And yes, this is without compromising my asset allocation or rebalancing options.

We really need to be looking at getting down to 0.1% or lower as is common in Europe.

dunstonh

How many other retail markets try and help themselves to 25% of the money that you're saving for your old age?

If you took your weekly shopping bill and removed the profit, then invested that profit figure at 7% p.a. and did so over 46 years and then displayed it as if it was in todays terms, don't you too think that figure would be artificially high as well?

So, 25% for the guys in pinstripes and only 75% left for the punter. Sweet!

Except that is not the case and you know that unless you have recently become brainwashed by the Daily Mail

We really need to be looking at getting down to 0.1% or lower as is common in Europe.

Although in Europe, the costs are unbundled. So, whilst the funds may be cheaper, there are charges on the products that go with them. Just as the UK has headed recently.

gadgetmind

dunstonh wrote: »

don't you too think that figure would be artificially high as well?

What's artificial about 25% of your pension savings and growth going elsewhere other than into your pension?

Except that is not the case and you know that unless you have recently become brainwashed by the Daily Mail

It was your maths and I just gave the percentage split. Perhaps if pension companies were forced to quote this figure then we'd have seen more downwards pressure on fees far sooner?

Although in Europe, the costs are unbundled. So, whilst the funds may be cheaper, there are charges on the products that go with them. Just as the UK has headed recently.

We've yet to see how long unbundling in the UK will take to really drive prices down but it's long overdue.

dunstonh

What's artificial about 25% of your pension savings and growth going elsewhere other than into your pension?

The 25% includes hypothetical growth. It is not all charges.

It was your maths and I just gave the percentage split. Perhaps if pension companies were forced to quote this figure then we'd have seen more downwards pressure on fees far sooner?

You took my figures and turned them into something else. The hypothetical growth doesnt go to the company. The charges are also not pure profit. Insurers tend to run at a lower profit than than the supermarkets. It also fails to take into account inflation.

We've yet to see how long unbundling in the UK will take to really drive prices down but it's long overdue.

Charges are already consistent with abroad when you compare like for like. Too often the comparison is unbundled vs bundled. You can get a 0.1% TER on a fund easily in the UK on unbundled basis. Savings accounts have implicit charges that are higher than most pensions.

Averages:
US 1.24%
Germany 1.37%
France 1.58%

Source: TCF Investments

gadgetmind

dunstonh wrote: »

You took my figures and turned them into something else.

I took the figure that had mysteriously disappeared from the punter's retirement pot and divided it by what they could have got were it not for the high fees. As those fees caused 25% of the pot to not be there, it's disingenuous to claim that it hasn't been taken by those imposing the fees.

dunstonh

As those fees caused 25% of the pot to not be there, it's disingenuous to claim that it hasn't been taken by those imposing the fees.

it is disingenuous to claim that they are lining someone's pocket.

gadgetmind

dunstonh wrote: »

it is disingenuous to claim that they are lining someone's pocket.

That it isn't in the punter's pocket is clear so I guess it must have simply evaporated.

http://en.wikipedia.org/wiki/Angel%27s_share#Angels.27_share

Personally, this is why I like to keep a lid on fees.

dunstonh

That it isn't in the punter's pocket is clear so I guess it must have simply evaporated.

So, it wouldnt have gone on stationary, R&D, utilities, staffing, tax, regulatory costs etc as well as profit? As well as the hypothetical investment return if no charges of any sort were taken.

gadgetmind

dunstonh wrote: »

So, it wouldnt have gone on stationary, R&D, utilities, staffing, tax, regulatory costs etc as well as profit?

With an emphasis on staffing and profit, yes, and most of those other line items would seem to benefit the City directly or indirectly.

As well as the hypothetical investment return if no charges of any sort were taken.

That return is the goal and the fees are what prevents it being reached. This is why I don't like high fees and why no-one else should either.