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

doughnutmachine

gadgetmind wrote: »

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

Only 25% going to the financial industry? This poor person lost 100% of their pension in fees

http://forums.moneysavingexpert.com/showthread.php?p=63620979&highlight=#post63620979

doughnutmachine

dunstonh wrote: »

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.

I'm all for spending money to give someone a job. But I'd rather give my money to the good workers at Jaguar Land Rover, or even those fine folk at Holland and Holland shotguns.

bowlhead99

Investing in a globally diversified collection of hundreds of companies' equities, bonds, government securities and other assets with say a hundred pounds each month would be pretty damn difficult to do without the help of a fund or few.

It would be quite an administrative and accounting burden to do yourself, plus there would be a lot of paperwork to convince the government you were sticking to the tax rules and not mixing your general assets with what was in your wrapper and you would still need to employ a broker/global custodian to hold all your positions. Costly and maybe a full time job to make the decisions, badly.

So to prevent that ridiculous situation for the millions of pension investors, they employ fund managers and platforms to do what they can't /don't want to do themselves. I'm happy to have my return be 7.5% after charges instead of 8% before charges, when if I were trying to do it without charges I might only get 5%- with higher risk and a greater time commitment.

So to me, that charge is acceptable. I am paying for skills and/or infrastructure which i don't have myself. The people charging me are not making massively outrageous margins, otherwise I would be investing exclusively in them...

The problem is if you accept that half a percent long term is worth it for something you couldn't do without, and still makes you a stack of cash - enough to turn a small fraction of your annual salary into something you can live on for the entirety of your retired life - some wag will say hold on, half a percent for fifty years is twenty five percent. Well yes it is, that's how maths works. But have I been scammed? Well, it doesn't really feel like it.

Some would say the greatest trick the devil ever pulled was convincing the world he didn't exist. Taking a quarter of your retirement fund and have you thank him - why, that's the perfect crime. But the fact remains, I couldn't do a half decent job of constructing even the x% component of my fund that's invested in European smaller companies, let alone the y% emerging markets stuff or the z% privately negotiated venture capital deals.

So I accept some level of fees, though I do look at them and prefer the smaller ones - I'm glad the market allows competition and lots of options to choose and judge over time. I do think it makes sense that if the government is mandating more employers to offer pensions, they should discourage /outlaw the 2.5% p.a. deals (just from being the default option in a government sanctioned scheme; not literally outlaw in every circumstance) and say that the default option for a corporate scheme should be well under a percent.

They were perfectly happy to say a stakeholder pension could be 1% a few years back, but the market has moved in since then. So 0.8% or less should do, and let the public make an active choice to pay more rather than have to complain to pay less.

But clamours of "they've stolen a quarter of my pension", when it's in fact just a quarter of a mythical gross return which cannot exist by itself, is disingenuous. Tesco haven't stolen 99.9% of your milk just because the cow didn't get paid very much for that pint you just bought.

RichandJ

bowlhead99 wrote: »

Investing in a globally diversified collection of hundreds of companies' equities, bonds, government securities and other assets with say a hundred pounds each month would be pretty damn difficult to do without the help of a fund or few.

It would be quite an administrative and accounting burden to do yourself, plus there would be a lot of paperwork to convince the government you were sticking to the tax rules and not mixing your general assets with what was in your wrapper and you would still need to employ a broker/global custodian to hold all your positions. Costly and maybe a full time job to make the decisions, badly.

So to prevent that ridiculous situation for the millions of pension investors, they employ fund managers and platforms to do what they can't /don't want to do themselves. I'm happy to have my return be 7.5% after charges instead of 8% before charges, when if I were trying to do it without charges I might only get 5%- with higher risk and a greater time commitment.

So to me, that charge is acceptable. I am paying for skills and/or infrastructure which i don't have myself. The people charging me are not making massively outrageous margins, otherwise I would be investing exclusively in them...

The problem is if you accept that half a percent long term is worth it for something you couldn't do without, and still makes you a stack of cash - enough to turn a small fraction of your annual salary into something you can live on for the entirety of your retired life - some wag will say hold on, half a percent for fifty years is twenty five percent. Well yes it is, that's how maths works. But have I been scammed? Well, it doesn't really feel like it.

Some would say the greatest trick the devil ever pulled was convincing the world he didn't exist. Taking a quarter of your retirement fund and have you thank him - why, that's the perfect crime. But the fact remains, I couldn't do a half decent job of constructing even the x% component of my fund that's invested in European smaller companies, let alone the y% emerging markets stuff or the z% privately negotiated venture capital deals.

So I accept some level of fees, though I do look at them and prefer the smaller ones - I'm glad the market allows competition and lots of options to choose and judge over time. I do think it makes sense that if the government is mandating more employers to offer pensions, they should discourage /outlaw the 2.5% p.a. deals (just from being the default option in a government sanctioned scheme; not literally outlaw in every circumstance) and say that the default option for a corporate scheme should be well under a percent.

They were perfectly happy to say a stakeholder pension could be 1% a few years back, but the market has moved in since then. So 0.8% or less should do, and let the public make an active choice to pay more rather than have to complain to pay less.

But clamours of "they've stolen a quarter of my pension", when it's in fact just a quarter of a mythical gross return which cannot exist by itself, is disingenuous. Tesco haven't stolen 99.9% of your milk just because the cow didn't get paid very much for that pint you just bought.

What a post. I'd thank it twice, nay a hundredfold, if I could.

Sadly though it won't stop the ignorami (sp/grammar ? couldnt be arrised to check, but at least I knew it might be wrong) from shouting about fund managers stealing their pension. I despair of the general level of idiocy in this country.

doughnutmachine

RichandJ wrote: »

What a post. I'd thank it twice, nay a hundredfold, if I could.

Sadly though it won't stop the ignorami (sp/grammar ? couldnt be arrised to check, but at least I knew it might be wrong) from shouting about fund managers stealing their pension. I despair of the general level of idiocy in this country.

I'm a shareholder in quite a few fund management companies. So I applaud your defence of high charges :T

But at the same time this is what the Daily Telegraph/ OFT has to say about pension charges.

http://www.telegraph.co.uk/finance/personalfinance/pensions/10322543/Rip-off-pension-fees-cost-savers-27bn.html

"Previous research by the Telegraph found that hidden fees and charges meant workers pension savings could be 50 per cent smaller than those on the Continent, despite saving the same amount."

"The OFT said it had compiled enough evidence to refer the pensions industry to the Competition Commission. But critically, OFT chief executive Clive Maxwell said the steps already taken by the industry to "address the competition concerns" meant such a referral "would not be appropriate in this instance"."

I don't think it's being stupid to consider the effects of charges when you start a pension. I personally would prefer to pay smaller pension charges and have a higher pension. But at the same time I respect peoples right to voluntarily give away a part of their pension pot each year :beer:

dunstonh

"Previous research by the Telegraph found that hidden fees and charges meant workers pension savings could be 50 per cent smaller than those on the Continent, despite saving the same amount."

That research was flawed though as it used hypothetical products in the UK and not real products with real pricing. Plus, the product from the continent was the cheapest example and not the average or most expensive. In effect, it used a cheap product to compare to a made up expensive one.

doughnutmachine

dunstonh wrote: »

That research was flawed though as it used hypothetical products in the UK and not real products with real pricing. Plus, the product from the continent was the cheapest example and not the average or most expensive. In effect, it used a cheap product to compare to a made up expensive one.

Has the Office of Fair Trading got it wrong as well?

"The OFT has reached agreement with business and The Pensions Regulator (TPR) on a set of reforms to the £275 billion market for defined contribution (DC) workplace pensions after its market study, published today, found problems which mean some savers do not get value for money."

http://www.oft.gov.uk/news-and-updates/press/2013/63-13#.UnONVypFD4g

dunstonh

Has the Office of Fair Trading got it wrong as well?

The OFT is not saying the same thing as you are.

found problems which mean some savers do not get value for money.

See the "some". There are issues with some and they are being looked at. However, it does not mean there are issues with all. I read that the average auto enrolment charge is 0.5%. So, putting a cap on it at 0.75% is not going to affect the average person or really affect the average provider. It just prevents a minority of greedy providers or obsolete schemes from carrying on that way.

bigadaj

bowlhead99 wrote: »

Investing in a globally diversified collection of hundreds of companies' equities, bonds, government securities and other assets with say a hundred pounds each month would be pretty damn difficult to do without the help of a fund or few.

It would be quite an administrative and accounting burden to do yourself, plus there would be a lot of paperwork to convince the government you were sticking to the tax rules and not mixing your general assets with what was in your wrapper and you would still need to employ a broker/global custodian to hold all your positions. Costly and maybe a full time job to make the decisions, badly.

So to prevent that ridiculous situation for the millions of pension investors, they employ fund managers and platforms to do what they can't /don't want to do themselves. I'm happy to have my return be 7.5% after charges instead of 8% before charges, when if I were trying to do it without charges I might only get 5%- with higher risk and a greater time commitment.

So to me, that charge is acceptable. I am paying for skills and/or infrastructure which i don't have myself. The people charging me are not making massively outrageous margins, otherwise I would be investing exclusively in them...

The problem is if you accept that half a percent long term is worth it for something you couldn't do without, and still makes you a stack of cash - enough to turn a small fraction of your annual salary into something you can live on for the entirety of your retired life - some wag will say hold on, half a percent for fifty years is twenty five percent. Well yes it is, that's how maths works. But have I been scammed? Well, it doesn't really feel like it.

Some would say the greatest trick the devil ever pulled was convincing the world he didn't exist. Taking a quarter of your retirement fund and have you thank him - why, that's the perfect crime. But the fact remains, I couldn't do a half decent job of constructing even the x% component of my fund that's invested in European smaller companies, let alone the y% emerging markets stuff or the z% privately negotiated venture capital deals.

So I accept some level of fees, though I do look at them and prefer the smaller ones - I'm glad the market allows competition and lots of options to choose and judge over time. I do think it makes sense that if the government is mandating more employers to offer pensions, they should discourage /outlaw the 2.5% p.a. deals (just from being the default option in a government sanctioned scheme; not literally outlaw in every circumstance) and say that the default option for a corporate scheme should be well under a percent.

They were perfectly happy to say a stakeholder pension could be 1% a few years back, but the market has moved in since then. So 0.8% or less should do, and let the public make an active choice to pay more rather than have to complain to pay less.

But clamours of "they've stolen a quarter of my pension", when it's in fact just a quarter of a mythical gross return which cannot exist by itself, is disingenuous. Tesco haven't stolen 99.9% of your milk just because the cow didn't get paid very much for that pint you just bought.

To take your analogy further, we should be grateful that Tesco
charge us less than what it would cost each of us to actually source/ make/ grow our own food?

A modern economy doesnt look at things in this manner, and I wouldn't necessarily expect my only criterion to be that what I'm being charged is less than that which it would cost me to do totally independently. To extend the supermarket analogy I would compare costs between supermarkets and this would inform my decision.

There has to be competition in all markets for them to work efficiently and this is the case for fund management as well. As a consumer of these products then I want cheap and basic products to be available and easily accessible, but be given the option to pay more for a particular service or specialism should I determine this is to be of value to me. Same as going into a supermarket you can get a basic item, or pay extra for premium items if I determine they are of higher quality, add to my quality of life or I simply like or am influenced by the marketing and advertising.

The situation now is hugely better than ten or certainly twenty years ago, but there is still room for improvement when we compare ourselves to other markets in the world. The on-going arguments about charges and the clarity of declaration of true costs to a retail investor are still areas of concern which need to be addressed in my opinion.

jamesd

doughnutmachine wrote: »

This poor person lost 100% of their pension in fees

That would be one poor person if all of their pension was from two years in the early 1980s. I like to hope that they had some other pension money from the remainder of his 45 or so year working life.

If you want you can do the same thing today. Just pick a pension or ISA with a fixed annual charge of say £100 and pay in only five hundred Pounds, then stop. Even if you get 10% investment growth that's only £50 a year so you lose £50 in charges and eventually end up with nothing. Then grumble about how it's a rip off because you chose a bad product for the amount you were putting in instead of a suitable one.