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  • FIRST POST
    • Former MSE Helen
    • By Former MSE Helen 30th Oct 13, 11:02 AM
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    Former MSE Helen
    MSE News: 'Rip-off' pension charges targeted by Government
    • #1
    • 30th Oct 13, 11:02 AM
    MSE News: 'Rip-off' pension charges targeted by Government 30th Oct 13 at 11:02 AM
    "The Government is considering banning all pension charges above 0.75% a year..."

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    'Rip-off' pension charges targeted by Government




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Page 1
    • dunstonh
    • By dunstonh 30th Oct 13, 1:50 PM
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    dunstonh
    • #2
    • 30th Oct 13, 1:50 PM
    • #2
    • 30th Oct 13, 1:50 PM
    It would make SIPPs largely unworkable as they offer investment from the market place and charges on those can be higher than the 0.75%.

    However, on personal pensions using internal pension funds, it is unusual for find a pension fund higher than 0.75%. So, with most modern plans already lower than that for internal funds, it wont really make any difference.

    The only damage is if they extend it to external funds or SIPPs or whole of market personal pensions where consumer choice would be limited by this.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • sandsy
    • By sandsy 30th Oct 13, 3:28 PM
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    sandsy
    • #3
    • 30th Oct 13, 3:28 PM
    • #3
    • 30th Oct 13, 3:28 PM
    The proposal only applies to auto-enrolment schemes which are unlikely to be SIPPs.
    • dunstonh
    • By dunstonh 30th Oct 13, 4:29 PM
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    dunstonh
    • #4
    • 30th Oct 13, 4:29 PM
    • #4
    • 30th Oct 13, 4:29 PM
    The proposal only applies to auto-enrolment schemes which are unlikely to be SIPPs.
    Originally posted by sandsy
    I agree but there are a couple that operate in that field. That includes a provider that this site typically endorses. It is somewhat ironic that this site promotes a platform provider in one article but then refers to their charges, indirectly, as rip off in another article.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • Butterfly Brain
    • By Butterfly Brain 30th Oct 13, 5:42 PM
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    Butterfly Brain
    • #5
    • 30th Oct 13, 5:42 PM
    • #5
    • 30th Oct 13, 5:42 PM
    What makes me angry is the fact that if you are widowed they claw back half of your spouses pension.
    Blessed are the cracked for they are the ones that let in the light
    C.R.A.P R.O.L.L.Z. Member #35 Butterfly Brain + OH - Foraging Fixers
    Not Buying it 2015!
    • Linton
    • By Linton 30th Oct 13, 5:47 PM
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    Linton
    • #6
    • 30th Oct 13, 5:47 PM
    • #6
    • 30th Oct 13, 5:47 PM
    What makes me angry is the fact that if you are widowed they claw back half of your spouses pension.
    Originally posted by Butterfly Brain
    Que??

    With an annuity you decide what % you want as a spouses pension. Obviously the more you have as a surviving spouses pension the less you get in the base pension.
    • hugheskevi
    • By hugheskevi 30th Oct 13, 7:16 PM
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    hugheskevi
    • #7
    • 30th Oct 13, 7:16 PM
    • #7
    • 30th Oct 13, 7:16 PM
    The consultation only asks about capping the charge on the default fund in an automatic enrolment scheme, so a SIPP could be fine as the workplace pension even if there was a charge cap.

    Interesting to read in the MSE report (acknowledging they seem to just be passing on a Press Association report) that:

    The Department for Work and Pensions (DWP) is considering banning all pension charges above 0.75% a year
    Would be interested to know what legislation DWP has that can achieve that, I would have thought that would be HMRC/HMT legislation (DWP only has workplace pension legislation). Still, small details and best not to go into too many details, far better to glibbly talk about rip-offs
    Last edited by hugheskevi; 30-10-2013 at 7:21 PM.
    • dunstonh
    • By dunstonh 30th Oct 13, 8:01 PM
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    dunstonh
    • #8
    • 30th Oct 13, 8:01 PM
    • #8
    • 30th Oct 13, 8:01 PM
    I thought I had missed something when I read the MSE article and said ALL funds.

    This consultation is a bit of a waste of time though in that particular aspect as you would find it hard to see a default fund on a modern contract that is above 0.75% on an auto-enrollment scheme.

    far better to glibbly talk about rip-offs
    It is MSE. Everything is a rip off.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • mania112
    • By mania112 30th Oct 13, 8:17 PM
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    • #9
    • 30th Oct 13, 8:17 PM
    • #9
    • 30th Oct 13, 8:17 PM
    NEST costs 0.3% pa plus 1.8% for each contribution.

    Why are the Government endorsing something that they know is too expensive?!
    • Thrugelmir
    • By Thrugelmir 30th Oct 13, 10:08 PM
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    Thrugelmir
    The only damage is if they extend it to external funds or SIPPs or whole of market personal pensions where consumer choice would be limited by this.
    Originally posted by dunstonh
    Doesn't get away from the fact that fund management is highly profitable. Totally to the detriment of the consumer.
    “The stock market is a device for transferring money from the impatient to the patient.” – Warren Buffett
  • Atidi
    The Government says someone who saves £100 a month over a typical working lifetime of 46 years could lose almost £170,000 from their pension pot with a 1% charge and over £230,000 with a 1.5% charge.
    Did the government give any indication as to how they arrived at these enormous figures please?

    What growth rate have they assumed? Even at a generous 10% annual growth rate, assuming no fees whatsoever, and the effective 25% tax credit on pension savings, I doubt £100 per month over 46 years would grow to more than about £350k

    Do they realise this country was recently in recession, and many peoples pension pots halved in value (or even worse!) and only now after 5-6 years are they starting to recover what with BoE rates at 0.5% ... and no indication it'll be rising anytime soon.
    Of course, any increase in the BoE rate will probably, whenever it happens, now have an adverse effect on share price growth.

    Even allowing for the recovery of pension pots, have the government taken into account the very low annuity rates now available partly because of that low BoE rate?

    Or have they also assumed, as is often the way when being sold these pensions, that the customer increases their monthly payment by a similar 10% per year?
    If so, that would mean in the 46th year, the customer would be expected to be paying over £7k per month in pension payments (i.e. almost £90k for the year). Yeah, right...
    Last edited by Atidi; 01-11-2013 at 9:34 AM. Reason: Too many 0s in 0.5% originally
    • dunstonh
    • By dunstonh 31st Oct 13, 10:14 AM
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    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.
    Last edited by dunstonh; 31-10-2013 at 10:17 AM.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • gadgetmind
    • By gadgetmind 31st Oct 13, 12:18 PM
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    gadgetmind
    And other retail markets dont make a profit?
    Originally posted by dunstonh
    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.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
    • dunstonh
    • By dunstonh 31st Oct 13, 1:19 PM
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    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.
    Last edited by dunstonh; 31-10-2013 at 1:24 PM.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • gadgetmind
    • By gadgetmind 31st Oct 13, 1:41 PM
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    gadgetmind
    don't you too think that figure would be artificially high as well?
    Originally posted by dunstonh
    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.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
    • dunstonh
    • By dunstonh 31st Oct 13, 2:15 PM
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    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
    Last edited by dunstonh; 31-10-2013 at 2:22 PM.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • gadgetmind
    • By gadgetmind 31st Oct 13, 2:40 PM
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    gadgetmind
    You took my figures and turned them into something else.
    Originally posted by dunstonh
    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.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
    • dunstonh
    • By dunstonh 31st Oct 13, 2:47 PM
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    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.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • gadgetmind
    • By gadgetmind 31st Oct 13, 2:58 PM
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    gadgetmind
    it is disingenuous to claim that they are lining someone's pocket.
    Originally posted by dunstonh
    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.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
    • dunstonh
    • By dunstonh 31st Oct 13, 3:03 PM
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    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.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
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