Pension funds whose high charges have 'torn the heart' out of savers’ retirements should scrap unfair terms and offer them new deals that do not penalise them, says Southport MP John Pugh.
Lib Dem Pension Minister, Professor Steve Webb MP has announced a clampdown on excessive pension fees. Hidden fees, charged by management companies, can wipe £100,000 off the value of a worker’s retirement fund.
The Lib Dems say that thousands of people are trapped in expensive old-style pensions, which can charge fees of up to 4 per cent of a pot’s value every year. Savers are even also being charged up to 20 per cent of a pension’s value if they try to switch to a better scheme.
The government would like to see the leading companies look again at their ‘back book’ of old pension policies.
“Perhaps the battered reputation of the pensions industry could be improved if they were to revisit these older schemes and offer scheme members fairer terms.” says Dr Pugh.
Lib Dems are warning pension managers that the Government will act within months to cap excessive fees if it has to. They are threatening to ban pension companies from being involved in the Government’s new auto-enrolment programme if their charges are too high. Under this programme, which starts in October, 10 million people will get workplace pensions automatically.
Pension funds that will run auto-enrolment schemes for businesses have already said that their annual management charges will be in the region of 0.5 per cent, which is “very low by historic standards” according to Mr Webb
“Every pound that savers put aside must be turned into the maximum possible amount of pension." says Dr Pugh, "I am pleased that the minister has said that, if further measures are needed to clamp down on charges, then we will not hesitate to take them.”
"Although, in general, pension charges are now coming down dramatically,some pension companies are still charging too much."
As well as looking at old-style pensions, Mr Webb is “watching” charging levels in so-called ‘default funds’, which are retirement funds where savers’ money is invested if they do not make an active choice about how their money is used.
Joanne Segars, the National Assn of Pension Fund’s chief executive, has called for much more clarity around charges. She says:
“People need to be very wary of high rates, and it needs to be much easier for them to find out what they are being charged, and why.”
Thousands of savers are stuck in old savings schemes which pre-date the 2001 introduction of stakeholder pensions, which are subject to strict regulation. Many of these old schemes from the 1980s and 1990s have terms that pension companies would not dream of offering to new customers today.
Last year, the National Association of Pension Funds (NAPF) said that fees are too high and that consumers face an “eye wateringly complex” system of hidden levies. It called for greater transparency when it comes to fees.
Trust in the pensions has hit an all-time low. The NAPF has warned that Britain is “sleep-walking” into a pensions crisis. The number of people contributing to personal pensions fell by 400,000 to six million people between 2008 and 2010.
Research by the think tank RSA found that nine in 10 of Britain’s biggest pension fund managers fail to warn people about hidden fees. Workers are routinely being denied low-cost pensions that are readily available elsewhere in Europe.