Pension providers are supposed to offer numerous alternatives for investors keen to save up a substantial nest egg for retirement. The consumer is presented with a bewildering array of options which are accompanied by an even more confusing and lengthy amount of small print. Nonetheless, the public grew up believing that pension providers had the best interests of savers at heart and confidently assumed that their money was safe. It turns out that this isn’t always case.
Enter the Fees
Naturally, providers aren’t investing your money out of the goodness of their heart. The consumer expects some form of charge but the level of fees can be exorbitant if you choose the wrong pension provider. A recent survey by financial analysts has shown that there are enormous disparities between the fees of providers despite placing the money in identical funds. How expensive can a poor choice be? £40,000!
The survey showed that pension providers with the lowest fees could save a person who contributed £2,400 a month for 25 years a total of £40,000 when compared to providers with the highest charges. This is a startling statistic and really brings home the importance of researching before settling on any one company’s services. The loss gets worse when converted into a 20 year annuity. Using the above figures when the pension gets converted into regular income, you could be looking at a loss of over £47,000.
How do they get away with it?
At present, pension providers are allowed continue on their merry way because the Financial Services Authority (FSA), theUK’s main pension regulator, has not cracked down though the body has promised to take action. Large industry providers believe that disclosing the whole truth may cause people to forget about investing in pensions. They insist thatBritaincan’t afford such an occurrence as the nation is currently facing a pensions shortfall with a huge percentage of people lacking a pension and becoming reliant on the state pension instead.
However, other experts state that the age of secrecy must come to an end. According to members of top investment firms, there are up to 16 hidden charges on pension investing which have yet to be revealed to investors. Pension providers add fees relating to currency exchange, trading, commission and numerous other activities of which the public are blissfully unaware. According to a financial firm’s survey, an incredible 80% of investors believe that pension providers are not giving them full disclosure when it comes to fees.
No More Commission
According to the FSA, pension providers will be banned from giving commission to financial advisors for selling pension plans. This ban is expected to come into effect in 2013. Although this will be an important development, it is still estimated that there will be a difference of £11,000 between what is charged by providers offering the highest and lowest fees.
Transparency
Unfortunately, the calls for transparency within the pension provider industry are far from deafening. However, those who are calling for it are making themselves heard. There are low cost investment firm who are leading the way and have launched campaigns which they have dubbed ‘True and Fair’ as a means of shedding some light on charges paid by investors. Although the figure is by no means 100% accurate, it is estimated that more than £2.5 billion a year is taken by various parties when buying and selling investment fund shares. This is almost 5% of the total funds held byUKcustomers.
Hopefully, pension providers who have large amounts of hidden fees will be forced to become more transparent. Until then, you will need to carefully research any pension decisions you make to avoid losing tens of thousands of pounds over the next couple of decades.
This article has been written in good faith. It is believed to be accurate at the time of writing and is for information only.
We do not provide financial advice. If you decide that advice (financial or otherwise) from an authorised or suitably qualified individual is necessary, then it is your responsibility to obtain this advice before proceeding with any transaction.
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