"Hidden" annual charges can dramatically reduce pension payouts,
a Midlands financial expert has warned.
Adrian Pickersgill, a director of Stratford-upon-Avon based Self
Financial Planners, claimed many were "hidden" from clients and did
not need to be disclosed under Financial Services Authority
rules.
His comments followed a report from the Royal Society of Arts
which cautioned that 1.5 per cent annual fees could reduce pension
values by nearly 40 per cent.
Mr Pickersgill said the whole situation was "a scandal".
He went on: "What people need to realise and understand is the
level of charges they are paying, and not to believe the
salesman.
"Until the FSA starts to properly regulate and force real fee
disclosure people will keep on being ripped off and in the end do
nothing towards any form of long-term saving."
Calculations show that on the basis of a 1.5 per cent annual fee
a pension of £16,000 would be cut to £9,900 a year - a
loss of about 38 per cent.
The report offered as an example someone saving £1,000 a
year for 40 years, but with no fees charged. By the time they are
64, they will have a pot at the end of that year worth
£248,000, and that will give them a pension, which will go up
every year by three per cent, of about £16,000."
Reworked with a typical annual fee deducted, the pension reduces
from £16,000 to about £9,900, a near 40 per cent
hit.
The figures assume growth of six per cent, inflation at three
per cent, and 20 years life after 65. Also factored in was
potential investment growth lost on the money taken out by
fees.
Some in the sector dispute this, saying annual charges vary
considerably, perhaps between 0.5 per cent and two per cent.
These, they insist, are mainly to cover administration and fund
management.
The pensions industry maintains charging a percentage is
preferred by consumer organisations and consumers themselves.
But Mr Pickersgill said it was often difficult for individuals
to work out exactly what the total charge was.
"It is a requirement to disclose charges but not necessarily in
a way people can easily understand. More needs to be done to
address the loopholes."