Labour slams pension fees 'rip-off'

Ed MillibandRui Vieira/PA Wire/Press Association Images

Labour is planning to turn its fire on pension companies which rip off their customers with excessive fees and charges, party leader Ed Miliband said.

Mr Miliband described overcharging on pensions as "the next chapter" in the scandals which have emerged in the financial services sector, and said he was "determined" to protect people who are seeing as much as half of their pension savings eaten up by fees.
No firm decisions have yet been taken on Labour's policy for curbing excesses, said Mr Miliband. But he floated the idea of a cap on charges, which could be linked to the 0.5% benchmark for fees set out by the former Labour government. And he said that he wants pension companies to be much more open with potential customers about how much they will charge and how that will affect their eventual income in retirement.
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At present, some people are paying up to 4% or 5% in fees and charges on their pension schemes, which could swallow up as much as £50,000 of every £100,000 they pay in over the course of their working life, he said.

Mr Miliband told a Westminster lunch: "I think there are real issues in the pension industry, because in parts of the industry people can see half the money they have paid in being taken in fees and charges and all of that. We are determined to tackle this as the next stage of what we do, because I think it is a massive, massive issue coming down the track. I am very worried about the scale of administration charges that people face. What you find in some parts of the industry - not all parts, clearly - is that people are facing not 0.5%, which is the benchmark administration fee that we put forward in the government scheme when we were in government, but 4% or 5%.

"Four or five per cent might not sound enormous, but it could mean up to half of people's investment is wiped out and we have got to do something about that. We have got to drive down these administration charges and we can't allow people to be ripped off in the way some people are."

The director-general of the Association of British Insurers, Otto Thoresen, said: "It is absolutely wrong for Ed Miliband to imply that a 4% or 5% pension charge is normal. Pension charges have been falling steadily for the last decade and are continuing to fall. In newly set-up automatic enrolment schemes the average annual management charge of our members is 0.52%. The average annual management charge for existing schemes is 0.77%. For many other existing schemes, both large and small, charges can be lower than 0.3%.

"Nobody in the pension industry would defend a charge of 5% for a standard new pension and we would ask Ed Miliband to write to us with details of the schemes that he is referring to. The pensions industry is absolutely committed to ensuring that charges are as low as possible and that customers understand what they are paying. We will continue to deliver further change but this type of misinformed attack does not reflect the considerable progress the industry has already made. This is a critical time for pension-saving in this country as we face the challenge to make the automatic enrolment reform, introduced by the last Labour government, a success. Scaremongering about charges runs the risk of putting off many people from saving into a pension, which is critical for their financial future."

A spokeswoman for the Department for Work and Pensions said: "Charges really matter - even relatively small differences can have a big impact on someone's pension pot. They are falling but we are not complacent on this issue. We have already prepared for the millions of new savers by establishing Nest (National Employment Savings Trust), which has a duty to act in the best interests of scheme members, providing low-cost, good-value-for-money pensions. Emerging evidence suggests that Nest's low-cost charging structure will act as a benchmark for the pensions industry and that competitive forces across the market will keep charges low. We plan to monitor charges on a regular basis across the pension industry during automatic enrolment. And as an added safety net we have powers in the 2008 and 2011 Pension Acts to set a cap on charges if they become excessively high."

Evidence suggests that the vast majority of schemes do currently have appropriately low fees, with a mean average of 1.23% and lower charges in the larger schemes, said the DWP. A survey carried out for the department in 2009 found that occupational default funds had an average annual management charge of between 0.4% and 0.6% of funds under management, with none higher than 0.9%. Nest's figure will be 0.3%, with a contribution charge of 1.8% - broadly equivalent to a 0.5% annual management charge.

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