SMOKING CAN damage your health, and therefore cigarettes are sold with a health warning. Pension fund charges can damage your wealth, and pensions should be sold with a wealth warning. The case for full public disclosure of all investment costs is underlined by the Government report on the pension industry: on what it charges its customers, and how – via disclosed and undisclosed fees and commissions. Over the long term, industry charges make a great difference to the investment returns of pension funds, and therefore to what income members receive on their retirement.
Over a 30-year period the charges levied by providers can, the report found, erode the value of a pension fund by between 12-31 per cent. Undoubtedly some of those saving for retirement closely monitor the performance of their pension fund. But most members and policy-holders are unaware of how much they have paid in fees and charges for the fund’s investment performance, and by how much this has reduced the size of their pension pot. Nor indeed, as the report indicates, can pension savers easily find out. Two-thirds of the trustees of pension schemes who responded to a research survey for the report, admitted that they too found it difficult to obtain all the relevant data from fund managers. The report found that what pension sellers told pension buyers was “unclear and confusing”. Savers were not given “explicit information on what services are received for the charges imposed”. That is a strong indictment of the pensions industry.
The need is to make pension costs simpler and more transparent. To do so pension members clearly cannot rely merely on the goodwill of a pension industry that has acted with such bad faith in hiding charges levied on its customers. The industry has been more concerned to conceal what it should have fully revealed: namely, the true cost of pension investment. However, with the implementation of the 2012 Consumer Protection Code, pension savers can expect to get clarity on charges, and to receive detailed annual statements about the performance of their investments.
One wonders why – prior to its involvement in this report – the Pensions Board, as industry regulator, tolerated such an unacceptable situation for so long, and did so little about it. Equally, while the Government is to be commended for helping to ensure transparency on pension charges, its report may do little to restore investor confidence in a pensions industry beset by difficulties; partly of its own making, partly of Government’s. Pension funds have performed poorly in a volatile investment environment, where the solvency of many defined pension funds is in question, with 80 per cent in deficit.
The Government, while favouring pension saving to complement the State pension and to boost retirement income, has done little to advance that policy aim, and much to frustrate it. A pension levy, when added to the high pension charges identified in this Government report, and now the prospect of a reduction in tax relief for pension contributions in the December budget, has made pension investment a much less attractive option.