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Labour steps up attack on 'rip-off' pensions charges
The Labour party has published a policy document setting out the big changes it wants to see in pensions in order to protect savers.
by Michelle McGagh on Jul 16, 2012 at 16:52
The Labour party attack on 'rip-off' pensions charges has continued with a call for changes that will make pensions easier to understand and to ensure pensioners receive the best deal they can when they retire.
Labour leader Ed Miliband last week accused the pensions industry of taking between 4% and 5% of a pension pot in charges each year. This is based on research by consumer group Which? that showed saving £50 per month in to a pension over 40 years, with a 2% return over inflation, would only be worth £15,964 at the end of the 40 years if charges were 4% a year. This compared to charges of 0.5% a year which would provide a pension pot of £32,398.
Miliband has branded pension charges a ‘rip-off’ and said it was a ‘massive, massive issue’ that needed to be challenged.
As part of his plans for ‘responsible’ capitalism, Labour has published a policy document detailing a number of pension reforms.
The first is to introduce ‘full transparency’ of charges and costs to stop savers being given basic and incomplete details of what they are paying out.
‘[Pension providers] only disclose the annual management charge which may comprise less than a third of the total costs and charges which are deducted from an individual’s pension pot,’ said the party.
Given that the average person changes jobs 11 times in their lifetime Labour also wants to ban high charges for leaving or moving between pensions as these could erode an individual's pension pot at retirement.
Labour also wants to ‘put pension savers first’ by pushing all pension schemes to employ a board of independent trustees. Trustees are normally found only in defined benefit pension schemes, which have been in sharp decline. The more common defined contribution scheme does not have trustees and the outcome of the pension relies solely on how well the investments do.
Labour also wants the government to lift the restrictions on the National Employment Savings Trust, the government-backed pension scheme millions will be auto-enrolled into from October. Currently there is a ban on transfers into Nest from other schemes and a £4,400 annual limit on contributions, it also wants the earnings threshold for auto-enrolment to be cut from £8,105 to £5,035 as this prevent the lowest earners from saving.
Finally the report calls for an end to the annuity ‘rip-off’ which sees savers buy their annuity, the policy that is bought in order to turn a pension pot into a retirement income, from their pension provider rather than shopping around for a better deal.
Every pension saver approaching retirement is entitled to maximise their income by exercising the Open Market Option but most fail to do so. Labour wants a ‘centralised clearing house’ to be introduced to ensure retirees get the best deal.
Pensions experts have backed Labour’s plans and have called for changes in the way pensions are run.
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