Pension Firms Forced To Reveal Hidden Charges

Financial firms will have to reveal their hidden pension charges as the government writes new rules into pension laws before Parliament.

The bad news is the rules only relate to workplace defined contribution pensions under the auto-enrolment scheme, so millions of other pension savers will still be in the dark about how much providers are siphoning off their retirement savings.

Pensions minister Steve Webb announced the move after campaigning for the companies to voluntarily come clean.

Webb has spent three years battering his way through obstructive pension company objections to change – particularly over the selling of bad value annuities and secret pension fees.

The new rules will let pension savers compare their pensions with those offered by other providers and let them see which are the best value-for-money.

Small amounts skimmed

A recent Office of Fair Trading investigation revealed pension firms levy up to 18 different charges that skim off small amounts of money throughout the life of a pension that can add up to thousands of pounds for individual savers.

Not all providers take the same fees, and sometimes they call them by different names, so savers can find identifying the costs difficult.

Many pension firms take transaction charges every time a saver switches, makes a withdrawal or contributes to a fund.

For instance, Zurich currently charges just over £26 when an investor switches units within the pension between funds.

The annual management charge is calculated daily on the amount of money in a pension fund.

The National Employment Savings Trust (NEST) has a 0.3% management charge and a 1.8% contribution charge, admits taking the payments daily.

Good quality pensions

The average annual management charge on a pension is around 0.85%.

The pensions minister and consumer groups, like Which?, are pushing for this to be reduced to a maximum 0.5%, but pension providers are resisting because any cut will hack into their profits.

Workplace pension schemes should report their charges on annual statements to savers, but private pension and those that have been running for several years may not have such a clear statement.

Retirement savers can contact their provider to ask for a list of charges, the rate that they pay and an explanation of when and why they are taken.

A pension department spokesman said: “We want to see consumers have good quality pension schemes so they have the confidence to plan for their futures. This includes understanding and clearly stating the true cost of schemes. We will outline our proposals to tackle this issue shortly.”

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