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UK pension industry disgraced by OFT report on unfair charges
| Published: | 7 Oct at 6 PM |
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The UK’s Office of Fair Trading (OFT) has released a hard-hitting report on the UK pensions industry, blaming it for ripping off investors through high charges.
Although the report focuses on British private pension investors, expats who are still paying into pension schemes and those holding offshore insurance-wrapped savings schemes are in a similar position. An OFT enquiry into charges taken from investors revealed that almost one and a half million who started their retirement savings plans before 2001 are paying 26 per cent more in charges than is the norm.
Pension firms are calculated to have ripped off around £27 billion in charges from retirement savers, an amount which OFT considers a disgrace, condemning the industry’s working practices and charging structures. According to the report, one in every seven schemes, holding around £40 billion of savings, offer extremely poor returns as well as charging extortionate amounts for managing the monies.
The OFT is urging the government to hold off on plans to cap pension charges at a one per cent rate, saying that it would open the door to firms charging that amount however poor their services and returns. Over the working life of an average investor, the resultant charges could lose 21 per cent of the fund.
The government watchdog is also urging investigation into pension investments taken out before 2001, as these offer especially poor returns along with high charges. As yet, OFT are not referring pension providers to the Competition Commission, although it stated that it believes problems occur between firms competing for savers’ money.
Figures show that a management fee of as little as 0.5 per cent cuts an average accumulated pension pot on maturity from £440,134 to £390,210. A one per cent charge would reduce the final figure still further to £346.670, a loss of £93,464.
Although the report focuses on British private pension investors, expats who are still paying into pension schemes and those holding offshore insurance-wrapped savings schemes are in a similar position. An OFT enquiry into charges taken from investors revealed that almost one and a half million who started their retirement savings plans before 2001 are paying 26 per cent more in charges than is the norm.
Pension firms are calculated to have ripped off around £27 billion in charges from retirement savers, an amount which OFT considers a disgrace, condemning the industry’s working practices and charging structures. According to the report, one in every seven schemes, holding around £40 billion of savings, offer extremely poor returns as well as charging extortionate amounts for managing the monies.
The OFT is urging the government to hold off on plans to cap pension charges at a one per cent rate, saying that it would open the door to firms charging that amount however poor their services and returns. Over the working life of an average investor, the resultant charges could lose 21 per cent of the fund.
The government watchdog is also urging investigation into pension investments taken out before 2001, as these offer especially poor returns along with high charges. As yet, OFT are not referring pension providers to the Competition Commission, although it stated that it believes problems occur between firms competing for savers’ money.
Figures show that a management fee of as little as 0.5 per cent cuts an average accumulated pension pot on maturity from £440,134 to £390,210. A one per cent charge would reduce the final figure still further to £346.670, a loss of £93,464.
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