Labour leader vows to put 1% cap on charges and force firms to stop hiding their true impact on eventual value of pension
Ed Miliband will promise to end rip-offs in the pensions industry by putting a 1% cap on pension charges and forcing pension firms to stop hiding the true impact of charges they intend to levy on the eventual value of a pension.
At an open session with the public in Manchester on Saturday, Miliband will say: “What’s been happening is while you were saving, the company which was supposed to be helping you, the company you trusted, has actually been taking thousands of pounds out in hidden fees and charges.
“If we win the next election, we will make sure that no pension company can take too much out of your pension. A strict cap on pension fees.” He will describe the measure as the “first shots in the all-out attack I want to launch on the way the rules of our economy now appear to be stacked against you”.
The vehemence of his attack will antagonise the pensions industry, already angry at Miliband’s promise to clamp down on City predators.
A recent report for the insurance firm RSA by David Pitt-Watson found that even when costs are declared, they are not done in a way in which typical pension savers are likely to understand.
The enormous impact of fees, where an extra 2% annual charge can, over the lifetime of a pension, result in a halving of the pension benefit paid out to savers, is not understood by individual consumers or by small employers, the report found.
It also showed “a huge proportion of our pensions disappear in fees – with charges swallowing up to 40% of the value of the pension (over the pension’s lifetime) and that the typical saver was aghast when they discovered what an apparently modest charges of 1.5% might actually mean to the eventual pay-out many years later.”
It pointed to discrepancies between the British system and others in Europe. “If a typical Dutch and a typical British person save the same amount for their pension, the Dutch person can expect a 50% higher income in retirement.”
Labour promises costs that are hidden at present would be made clear to savers with a single figure expressed – in both percentage and cash terms – for how much will be charged this year, as well as a projection for how much will have been lost due to charges at the point of retirement.
Labour would impose a legal duty on any financial services firm that manages savings to maximise the saver’s returns. It would also refer the whole industry to the Office of Fair Trading. Miliband will point to evidence from the recent government commissioned Kay Review revealing an “explosion in intermediation”. Kay said the investment chain has become longer with custodians, asset managers, trustees, investment consultants and independent financial advisers all applying charges.
The annual costs paid out by pension funds increased globally by over 50% between 2002 and 2007. Meanwhile, returns on UK pension funds have fallen from 4.1% to 1.1%.
Miliband will add: “Millions of working people are doing the right thing and putting money aside. The least they expect is for it to be there for them when they retire. But too often people are finding there is much less in the pot than they expected”.
Miliband will also claim: “There is a crisis of living standards that is profound, prolonged and painful. This is an economic emergency. We are at risk of a decade-long decline in living standards. For millions of families, the prospects feel bleaker now than for 50 years, since the Second World War. And we will need the same spirit to overcome this crisis as Britain showed then and in our gravest moments through history.”
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