Pension fees and management charges

Tonight’s Panorama focused on pension charges. The point needs to be made that pension fees and annual management charges can eat heavily into the pension pot and that even tenths of percentages can make major differences either way to the annual pension earned from defined contribution schemes. Indeed, David Pitt-Watson has made this point excellently for the RSA and also for Unions 21.

However, I’m not sure that the populist style of reporting here is at all helpful. A simple comparison of the total lifetime charges of a pension fund and the contributions invested ignores the amount of investment returns and, while growth over the last ten years has been low, a person now retiring who started their fund 40 years ago would simply not be in this position. To ignore investment growth of funds in the interim is frankly alarmist, even where the sizes of the fees involved is quite shockingly large and inexplicable in terms of the costs of the activity involved in securing that growth (or, better said, the opportunity for that growth). The situation facing people with defined contribution schemes is difficult enough without causing further panic, and this is the reverse of what we need when it remains true that the state is becoming increasingly reliant on people taking sensible, mature decisions over saving for their retirement.

What we do need, in contrast, is a clear education campaign on the relative costs and implications of changes and AMCs, and we do need to cut through the lack of expertise which makes pensions investment decisions so frightening as to induce sclerosis. Markets don’t thrive on lack of information and opaque structures – though bad practices and profiteering certainly do. The case for regulation here is pretty strong – and, in this direction, Panorama has shone a useful light.

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