The pensions of British savers are being halved by high costs and hidden charges, say leading fund managers.
Greedy pension giants are eating into the pots of millions of workers who have saved hard and invested for their retirement.
The fees levied by some of the nation’s favourite pension providers mean that Britons retire with a plan worth half as much as their equivalent in mainland Europe, even though they have invested the same amount.
Middle-class couples may see as much as £100,000 slashed from their pension plan through fees.
The total costs levied by some high street names including HSBC, Scottish Widows and Legal & General in some cases added up to more than £200,000 over 40 years for someone saving £200 a month.
L&G rejected the figures as misleading saying the comparisons given did not compare ‘apples and apples’.
But Bob Bullivant, of retirement advice firm Annuity Direct, slammed the scheme managers.
He said: ‘When you have saved all your life for retirement, it is not unreasonable to expect a decently performing pension and annuity which does not cost the earth.
‘We used to have the best pension system in the world, but greedy managers have spoiled it.’
Fund manager David Pitt-Watson has found that those saving £1,000 a year throughout their working lives could expect an inflation-protected pension worth £16,080 a year if they did not pay fees – but this is reduced to £9,900 after the fees are levied.
Many popular pensions will be worth between a third and a half less for those retiring, after costs are taken into account.
Mr Pitt-Watson said: ‘If a typical British and a typical Dutch person saved the same a mount of money for their pension, the Dutch person will end up with 50 per cent more income in their retirement than the Briton.’
Harinder Mann, of the charitable enterprise group RSA, said: ‘British workers continue to be let down. Up to 60 per cent of the money invested in private and occupational pensions is swallowed up in administration costs.’
Shrinking state pensions mean many British people rely on private schemes. More than seven million have pensions exposed to the stock market: five million through company schemes and two million through private plans.
ATP, a large Danish pension fund, has just opened a London office where it will offer low-cost plans for the UK market, according to the Daily Telegraph. It charges about 0.04 per cent a year to manage its fund compared with the usual 1.5 per cent or more in Britain. The charges are equal to less than £5 per person per year.
L&G said ATP’s comparison was unfair and that the charges were only for the underlying fund within a pension and did not include the full costs of running a pension.
It also said that most people wanting to save £200 a month in an L&G pension would take a stakeholder scheme, where government rules state the charges are limited to 1% a year.
An L&G spokesman said: ‘This is clearly a company that’s trying to launch in the UK and is trying to grab headlines. In doing so, they have created a misleading story by not comparing apples with apples.’
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August 26th, 2010 at 7:52 amRichard Smith says:
The level of charges within a Stakeholder Pension plan are capped at at 1.5% for the first 10 years of the plan, and then limited to 1% thereafter. L&G should know better.
Importantly the whole issue of Pensions needs considering very carefully, the level of state support for Pensions has been collapsing in recent years and is likely to get worse. That said a massive hole in the Governments finances, increased levels of personal debt much caused by Housing Prices and of course record levels of Council Tax, Fuel Prices, Food Prices all conspire to make saving for Pension less interesting.
For the first time in decades there is less interest in Employers making decent schemes available, partly caused by changes in legislation.
Charges within Pension Schemes are only one aspect, fund choice, how these funds are allocated and the overall level of contributions are all an issue, like charges. However the real problem for many is the simple fact: People seem not to like Pensions anymore.
I am not sure when this started, but with over 22 years in the financial services profession there has been a marked change in the attitude of consumers.
You will need a Pension in retirement and you will need to make your own provision. In simple terms the sooner you start the better off you will be. No one is coming to save you with an alternative plan.