Pension fund bosses told to reveal hidden costs
Published on 24 February 2014 02:00 PM
Older people should see better value for money in their retirement savings under the Government's new plans to reform pension fund fees.
The proposals will force pension funds managers to reveal hidden charges. These hidden costs can wipe tens of thousands of pounds off the value of people's retirement savings pots.
Ministers estimate that someone who saves £100 a month over an average working lifetime of 46 years could lose nearly £170,000 from their retirement pot with a 1% charge. This sum rises to more than £230,000 with a 1.5% charge.
Such charges can equate to eating up to a third of the money people have saved for their retirement.
A ‘lack of transparency' around the true cost of schemes
The Government is expected to outline measures later this week that should see pension savers enjoy more transparency and better value for money. It is also likely to set a cap on pension scheme charges.
Ministers will order fund managers of defined contribution workplace schemes to disclose full facts of all their costs to customers, The Times reported.
The Office of Fair Trading (OFT) warned recently in a report that there was 'insufficient visibility and comparability of charges' to make sure that competition in the sector was totally successful.
The OFT's study found 18 separate transaction costs that fund managers are hiding from customers.
A Department for Work and Pensions spokesman said: 'A lack of transparency around the true cost of schemes can prevent savers from having value for money.'
Pensions minister pledged 'full frontal assault' on charges
He said the Government is introducing the reforms to ensure that consumers have access to good quality pension schemes so they have the confidence to prepare for their futures.
The announcement on disclosure of charges is being advanced to avoid a potentially harmful Lords rebellion headed by former chancellor Lord Lawson, The Times reported.
Lord Lawson, speaking in a debate on the Pensions Bill last month, said compulsory disclosure in a competitive market will go a very long way towards what he termed 'removing the mischief'.
Pensions minister Steve Webb has already pledged a 'full frontal assault' on pension scheme charges. The Government is consulting on a ceiling of about 0.75% a year.
Small disparities in fees can build up to vast variations in the size of the pension that someone ends up with.
Caroline Abrahams, Charity Director of Age UK said, 'The industry and government must act fast to ensure that all pension savers, current and future, get the best possible return from their savings by imposing a charge cap if necessary.'
Copyright Press Association 2014