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

jamesd

doughnutmachine wrote: »

"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."

Now, just which people would those "some" be? Perhaps the ones in the pre-2001 plans where the OFT estimated that the average extra AMC cost compared to a modern scheme would be about £50 per person each year (page 118 of the report)? You know, the ones that on page 117 it mentioned had an AMC that is 0.16% higher than those from 2001 onwards? The ones where the industry association has already agreed to review them to get that changed?

doughnutmachine

jamesd wrote: »

Now, just which people would those "some" be? Perhaps the ones in the pre-2001 plans where the OFT estimated that the average extra AMC cost compared to a modern scheme would be about £50 per person each year (page 118 of the report)? You know, the ones that on page 117 it mentioned had an AMC that is 0.16% higher than those from 2001 onwards? The ones where the industry association has already agreed to review them to get that changed?

Perhaps you should take your questions up with the Office of Fair Trading? I was quoting from their website you know....

doughnutmachine

bigadaj wrote: »

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.

I remember twenty years ago unit trusts had an initial charge of 5%. So things have got a lot better.

I can't think of any other industry where the people paying for a premium product get less than the people buying the economy range.

jeffcav

Our company found one, Aegon Universal Lifestyle Collection, 1% charge dropped to 0.85% if you make regular contributions, what do I do........

jeffcav

It seems I am one of the SOME, Our company chose Aegon Universal Lifestyle Collection, 1% charge dropped to 0.85% if you make regular contributions, and this was in 2012,
so this will help SOME people who are trapped in a ripoff company system, who cant move because they will lose their company contributions, worth while IMO.

jamesd

doughnutmachine wrote: »

Perhaps you should take your questions up with the Office of Fair Trading? I was quoting from their website you know....

I've already read their report, not just a highlight page. Did you mean another some from the ones I've described based on that report, where the problem is already being sorted out?

jamesd

jeffcav wrote: »

It seems I am one of the SOME

Doesn't look like it based on your numbers, you're well within the post-2001 charge range, though at the higher end of it. Your scheme is not one that the ABI members are going to look at and get changed, one of the ones with default fund charges over 1%.

jeffcav wrote: »

Our company chose Aegon Universal Lifestyle Collection, 1% charge dropped to 0.85% if you make regular contributions, and this was in 2012, so this will help SOME people who are trapped in a ripoff company system, who cant move because they will lose their company contributions, worth while IMO.

0.9-1% is the most common (mode) charge at the moment (page 105), about 60% more common than the next most popular, 0.7-0.8%.

The per-scheme average has dropped from about 0.91% back in 2001 to about 0.75% now (page 100). The average per Pound invested has dropped from about .82% before 2001 to about 0.63% after 2001 (page 103), but much of that is for the bigger schemes, not the smallest.

It's possible to do better than you're getting and you might ask whether it's possible to transfer some money out from time to time to get a broader range of investments and/or lower ongoing costs. Try not to over-react, though, a 0.1% difference is £10 per year for each £10,000 invested so if you don't have much money in there it's not a big cost difference.

It's also worth looking at the breakdown of the charges and which investments are being used. You might find that there's a cheaper or better one or more than the one that has the price you're mentioning, still within the same work pension.

You are affected by one practice that the OFT was critical of: the use of a discount for active members, even though those are more expensive for the provider. The OFT proposed banning those discounts for active members and higher charges for inactive.

doughnutmachine

jamesd wrote: »

I've already read their report, not just a highlight page. Did you mean another some from the ones I've described based on that report, where the problem is already being sorted out?

All I can say is that I'm glad I don't pay the recommended 0.75% on my pension... that's far more than I would consider cost effective. My SIPP is with HL, they charge a max of £200 a year (plus dealing fees etc). The difference between HL and 0.75% on a £500k pension is over £3,500 a year.... excuse me if i'd rather have that £3,500 a year in my pocket.

The financial industry just gives the impression that they con customers whenever they can...... I personally believe that some professions attract certain types of people, ie people that like caring for others become nurses, people who like making things become engineers, people who are greedy work in finance.

PS good for you having the time to read that full report.

gadgetmind

doughnutmachine wrote: »

I can't think of any other industry where the people paying for a premium product get less than the people buying the economy range.

Well, quite.

I guess some people like paying high fees to the extent of even defending those who are massively reducing the value of pensions via said fees.

jamesd

doughnutmachine wrote: »

All I can say is that I'm glad I don't pay the recommended 0.75% on my pension... that's far more than I would consider cost effective. My SIPP is with HL, they charge a max of £200 a year (plus dealing fees etc).

So you pay the fund managers nothing? Or do you take the risk of low diversification by using only a small number of shares instead?

doughnutmachine wrote: »

The difference between HL and 0.75% on a £500k pension is over £3,500 a year.... excuse me if i'd rather have that £3,500 a year in my pocket.

£50 / 0.16% = £31,250 average pension pot size using the numbers from the OFT in my earlier post.

So lets start with the £200 you're paying HL. On that average pot size that would be 0.64%. But since they charge 0.5% capped at £200 it's really 0.5%. Now say you limit yourself to just one buy of one thing per month to minimise dealing charges for your regularly invested work pension. That's an additional £11.95 a month, £143.40 a year. That's another 0.459%.

So with one buy a month we're at 0.959%. Add 20% VAT and that's 1.1505% before the charges for whatever you're investing in.

That makes 0.75% look cheap, particularly given the higher diversification. But of course that's for the average pot size. And you know that the higher value pot sizes will be skewing the average, so for most pension investors it's going to be more than that. And of course that's just one investment buy and no sales a month, so anyone wanting to diversify would probably pay more.

Those with the relatively rare half million Pound pots can get better deals than those with the more typical sizes that most real people have. But it does matter in discussions like this to realise that I and perhaps you and many others here have unusually big pension and other investment pots. We're not normal in our investment sizes.

doughnutmachine wrote: »

PS good for you having the time to read that full report.

I'm interested in knowing what things actually say, so I do things like that. It's interesting. So were the FSA's Mortgage Market Review reports and the Pensions Commission reports.