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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

Labour steps up attack on 'rip-off' pensions charges

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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24 comments so far. Why not have your say?

David Rowse

Jul 16, 2012 at 18:03

Are these the very political people who 'dipped' their fingers into pensions a few years ago by changing the law on the tax paid on pensions? What a short memory these people have as they 'con' their way through life and expect Jo Blogs to quickly forget their greedy, grasping and grubby way of working.

Oh dear!

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A Sick SIPP Owner

Jul 16, 2012 at 18:06

Shame that we ( the hopeful pensioners) could not rely on the government 'SERPS' concept to provide for our pensions by putting ( you may have heard the term INVESTING) the contributions into 'industry' rather than spending it on their day-to-day needs

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snoekie

Jul 16, 2012 at 18:16

Quite apart from the great pension robbery orchestrated by Labour (and continued by the present govt) Labour had 13 years to do something about it.

They didn't. Why? They were getting too much tax from the fat cats which they wouldn't have received if they had done anything about it, and it would have helped many, but kept the 'quick' money out of their reach.

Good to raise the subject, but sheer opportunism by a corrupt bunch who raise matters they should have tackled when they were in power. They didn't even try and they knew it was an issue when they were in power.

The question now is whether this bunch of thieves will do anything about it. If they do it will mean less tax to be collected, albeit that it benefits many.

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Battler

Jul 16, 2012 at 18:17

It would be interesting to ask Ed Milliband and Ed Balls what advice they gave Gordon brown on pensions during Labour's term in office. It is fine to issue such a report when you are out of office and seeking the popular vote, only to milk savers when you get back into office. no mention of reversing the dividend tax credit?

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span1500

Jul 16, 2012 at 18:22

I thought I'd heard that it was basically some older pension schemes that levied high management charges and locked pensioners in with high exit fees.

It seems that, on this point, Labour is falling into the trap of reading Which? Magazine, and thinking it can score a few quick political brownie points while the subject's hot.

There's a lot wrong with pensions. We desperately need a proper independent (non-political) look at the whole industry in company with all current legislation. This would hopefully make proposals for a fair and economically viable system which will become attractive to the current generation. In particular to the vast number of self-employed people in this country who contribute, by their individual entrepreneurship, to the wealth-producing section of society.

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Ubiqueloco

Jul 16, 2012 at 18:28

What a bunch of hypocrites shows people have short memories and MP's even shorter, Gordon Brown and the pensions levy? Oh and what about the reassessment of future benefits making pensions more expensive and the doing away of the 105% holiday? And the FSA lowering the performance figures and increasing the charges, all on labours watch!

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Pilgrim

Jul 16, 2012 at 18:35

A useful development. The private pensions industry is long overdue for closer scrutiny.

The annuity rip-off is not just limited to the pension savings companies's in-house products. The recent improvements to life expectancy have been projected forwards on the assumption of a continuing trend. This is one of the causes for today's high cost of annuities. The other is due to the Bank of England artificially rigging the Gilts market through QE. However, forward projections of changing life expectancy are purely conjectural, and have no certainty attached to them. All we need is an adverse change in economic circumstances, or new potential epidemic disease events (viz BSE, AIDs, marburg fever, Green Monkey fever,Ebola, Lassa fever,Sars virus (chicken flu) etc.etc) and the impriovements to life expectancy may disappear.

One question worth considering is whether companies in the pension savings business should also operate annuities. These are very different financial products, and where they are separated there may be a hope for improved efficacy in regulatory oversight.

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Franco

Jul 16, 2012 at 19:19

Only idiots believe what politicians say out of office. They spout what ever is required to get them elected and once in office they do the bidding of their masters, the finance industry and nothing else.

It was Labour that taxed dividend payments received by pension pots, Labour that agreed to Thatcher's abolition of banking controls and unlimited bonuses, Labour that established toothless FSA. Labour's war monger Tony Blair who pleased bankers so much they appointed him "advisor" at £6 miln a year. Labour who opened the flood gates to mass, immigration.

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Michael M

Jul 16, 2012 at 19:25

What absolute hypocrisy.

It took the Labour Party 13 years to ruin the pensions industry and suddenly Ed Milliband wants to use a Which report to raise the issue of annual management charges on pension pots.

These charges were their during their time in office, so why did they not do something about them then?

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David Chapman

Jul 16, 2012 at 19:57

Well said all ! - If Mr Miliband expects to be taken seriously then he should commit the Labour party to REVERSING THE ABOLITION OF THE DIVIDEND TAX CREDIT for pension funds - but I really can't see this happening - can you ?

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Pilgrim

Jul 16, 2012 at 20:09

Leave off labour! It isn't just their fault. The coalition hasn't been in too much of a hurry to restore the pension fund tax credits either!

But any idea which helps to get some of the moneymen's claws out of the pension funds has to be worth supporting, even if Ed Milliband suggests it!

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dd

Jul 16, 2012 at 20:59

Pilgrim,

I often agree with you but a large chunk of this is indeed due to Labour's historic actions which positively discriminated against the private sector while increasing the country's fixed (running) costs, with the creation of non-jobs. Of course there are other factors such as QE and longevity but Mr Brown was living a lie with Prudence right from the start.

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A Sick SIPP Owner

Jul 16, 2012 at 21:27

Re the "toothless FSA" - note their 'setup' included (as far as I am aware) immunity from legal action for any of their action, or inaction: - - - -

So I cannot take action against thim for their "Protect the Public" actions such as: - - - - - - - -

Not publicising (even to IFA's) that they had taken action against an organisation presenting ARM bonds as a SIPP investment for those dependent on the fund for their ( pensions) living income. .... . . . . .

Not publicising that that organisation had no PII..... . . . . . .

Not publicising that the UK sellers of the bonds were taking money for bonds that could not legally be sold. .. .. . . . . . .

Not publicising that they considered the bonds were not suitable for any but the most experienced investors. . . . . . . . . . .

Declaring the investment type to be "TOXIC", so stopping anyone reccomending investment in the fund, and any similar ones, despite their returns and asset growth being good befoore the regulators stuck-it-to-em. . . . . . .

Taking large bonus's ontop of their excessive salaries

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Pilgrim

Jul 16, 2012 at 22:42

Does anyone remember A day in 2006 when a labour administration swept away an oppressive and misguided system of micro-manageing pension provision through the tax system. What we have in its place is still unnecessarily intrusive, but it is a tremendos improvement on the previous regime. It allows me to manage my pension fund with a level of flexibility which was almost beyond the power of dreams before A day.

Conceptually pension provision is very simple, but our civil service contrived tax regulations so complex that it held half the nation in thrall to an unholy alliance of taxmen, accountants and pension providers. Today, while things are much better, the level of unwanted state intrusion is still too costly and too counterproductive. Pension providers are obliged to issue regular 'illustrations' of the expected outcome of savings based upon wholly unrealistic hypothetical rates of return. I have asked my pension provider why they send me such meaningless handfulls of paper. This is covered with information which even they agree is nonsensical, but expensive to produce. The answer is that this is what the state obliges them to do. So well done the labour government for A day. And well done too for recognising that it is unfinished work. Perhaps the coalition will pick up the baton too?

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Dylan via mobile

Jul 16, 2012 at 22:49

Scrap Pensions, job done. ISAs or similar are the future for most. No tax relief on the way in or tax to pay on the way out. Easier for everyone. Like many I have a company pension where the company pays in, but what's stopping a company contributing to an ISA or increasing your salary if you opt out of the pension scheme? It gives greater choice and flexibility. A Pension is great if you live to see it, but they are great for pension companies either way.

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denam

Jul 17, 2012 at 09:06

I agree with most of the comments except those that obviously emanated from IFA's or others with a vested interested in ripping of pensions.

I campaign for some years via my Labour MP, the Treasury and many others to highlight how unfair annuities were of course it was all a waste of time as whilst in power Labour was not interested nor will it be interested if they get in power again,

Whilst I sympathise with the ARM investor (I have got to - as I am one who has also been ripped off by my IFA mis- selling ARM) the comments are not entirely relevant. What I do agree is that Labour set up three totally toothless organisations the FSA, FOS and FSCS. The reason behind this was to try and distance ministers from financial responsibility.

The three organisation claim independence and also claim that they police the financial industry in the UK.

With respect to independence there is no such thing. They all rely on information on each other’s systems. I have personally witnessed the treasury minister struggling to answer questions in a Westminster debate on the Leman's debacle with a FSA senior staff member literary whispering in the minister’s ear. So much for independence.

Returning to the Pensions issue one may ask why people have become involved in some of the investments that have failed. The reason in my case is that I was also ripped off by the annuity industry and was trying to improve my pension by other means. I took the advice of an IFA from a well known company and made two investments what my Investment Suitability Letter claimed to be “VERY LOW RISK INVESTMENTS".

Guess what these both failed and I have lost a lot of money.

Oh and by the way if anyone looking for and IFA thinks checking the FSA register for disiplinary action is a guide to finding a good FA think again. It seems to me that no matter what an IFA does or how many people have been ripped off it is very rare you will find evidence of disiplinary action by the FSA.

So now I tell everyone NEVER BUT NEVER TRUST AN IFA. The same really goes for any politician as one can never believe anything they say especially if they are in opposition.

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derek farman

Jul 17, 2012 at 09:35

So Labour (Brown) made off with billions from our pensions, and when that was all gone they went on a spending spree which we will take years to pay for .

Never never never let them in again. They never seem to understand prudence when they are spending our money.

Despite the damaging bumbling around of the coalition, they will do far less damage than Labour ever did .

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Rose G

Jul 17, 2012 at 10:27

Those who administer the pensions industry are the ones who have enjoyed the fruits of investors labour.

No politician in or out of government is trustworthy these days, its all about what they would do when in opposition, and what they actually do is the opposite - I wonder if it is possible to take these scumbags to court for their duplicity? Lies, damn lies is what they are good at.

As for Milliband, he is the most unconvincing leader of the lot of them!

Labour is a dead party as far as I am concerned, voted for them once to get rid the useless tories, and will probably do so again, but not because I actually believe any of their rhetoric.

As for the coalition, watch this space, they are unravelling, but putting on a show, I do not believe they will last the full term, and come 2014 or so, the tories will dump them to campaign for the next election.

The pensions industry has made money for those managing the investments, as for those who invested in them, we have been ripped off and I have advised my children to put any savings in an ISA.

The whole of the pensions industry are responsible for the lack of trust in them, just like we trust no politician today - they have been enjoying the benefits of rip off Britain, and it has to come to an end.

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dd

Jul 17, 2012 at 14:19

There are a number of factors.

The pensions industry should not carry all the blame. My (small) pension fund continues to go up, annually, though any increase is smaller than it would have been if GB had not taxed divis so that he could spend to buy votes.

The "What you might receive when you retire" in my (small) pension continues to go down, annually, (while the fund goes up). This is due to QE and longevity, though as has been said before, the QE has been necessary for other reasons and has been decided upon by politicians.

Some IFAs are evidently bad - but not all of them. I think that some people use their IFAs the wrong way if you will pardon the expression. We should use them to establish our options but not to decide on our investments. It is impossible to eliminate risk unless that risk is underwritten by the taxpayer... All we can do is spread the risk.

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Rose G

Jul 17, 2012 at 15:08

I believe that the financial services have been unregulated or regulated by dumbos, or the regulators were only there to seem as if they were regulating, but doing nothing to regulate because hardly any of them seem to know what they are supposed to be doing.

As for all the quangos set up by various governments to regulate, are absolutely bloody useless waste of taxpayers money. The FSA is chief among those that are not fit for purpose, yet Turner ended up with a knighthood or some such honour, because of his friends in high places, not because he did a good or even half decent job.

As for IFA, many of them did mis sell products because the providers of the products gave them huge commissions for the sale of their products. I believe that transparency regarding commissions linked to sale may address this problem eventually, but as long as we have people relying on commissions for their income, we will get the sale of products which will in time be shown up to be the scams they are.

As far as opinion about bankers, the banking industry is concerned, over and over we have seen how precarious they have made various countries, yet we are still at the discussing stage, instead of bringing on the hand cuffs for these thieving individuals who believe they are above the law.

As for Mervyn, not sure what he will get his bonus for, he has not been able to do anything to get the economy going again!

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Michael Brooks

Jul 18, 2012 at 20:09

Like so many Labour supportersI wish Gordon Brown had never happened. Don`t confuse that out of touch vote loser with the modern Labour Party. I am heartily sick of Dave`s `amateur night` politics.

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Raj Thamotheram

Jul 19, 2012 at 15:00

Dont we like to play "punch and judy" on key issues?!

Sadly there is enough blame to go around.

What is encouraging is this report, endorsed by a Conservative and Labour peer.

http://www.cps.org.uk/files/reports/original/120613094539-Putthesaverfirstabridgedversion.pdf

What I like about this report from Mrs T's favourite think-tank is that it avoids the emotionally indulgent exercise of allocating blame and focuses on what how we can change the system.

Something for all the outraged commentators on here to consider too?

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derek farman

Jul 19, 2012 at 16:51

Raj Thermotherum, the report is incredibly well thought out and logical .

For the majority of people the complications and mistrust of the pensions area are such that they give up and do nothing. So the suggestions to simplify and safeguard are vital.

Also the suggestion that all people should be schooled in basic maths is very important. They would then have at least some chance of understanding percentage returns and interest rates etc.

One point that is not mentioned in the report , and for which legislation should be drafted to protect people, are the scandalous rates charged by loan sharks . Once people fall into the clutches of these people, they have little chance of clearing the debts they accumulate.

Also with ISA's becoming a popular way of saving, something needs to be done about banks and building societies who suddenly reduce rates to rock bottom on existing accounts while opening new accounts at substantially higher rates for new customers. Pure and unadulterated dishonesty in my book.

For instance how can Barclays justify offering rates around 3% on a couple of accounts when their 2 E savings accounts pay 1.26% and .1% and their children's account pays .25% . This means there are a mass of people out there who are being ripped off. And it's not only Barcalays . Most of them do this sort of underhand stuff.

In fact I've got a case with the Financial Ombudsman as we speak where I thought I was getting 2% on an account but the society in question reduced the rate to .05% but did not inform me. There must be thousand of people out there who are being ripped off by these revolting tricksters.

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A Sick SIPP Owner

Jul 19, 2012 at 17:33

Derek,

I agree that people should be educated to understand % and the implication of flat rate and % of fundvalue charges on investments.

They should also be protected from an industry where the minimum they will be asked to pay will be a substantial part of their money far above that needed to process and manage the funds.

They should also be protected from changes in the terms and government abstraction of money from those funds.

Considering 'account' rate changes - well all savers should be looking for somewhere else to put their savings , especially when they have had them in an account with rates specified for a fixed period.

More to the point is why ISA rates for subsequent years, and for small 'transfer in,' ISA's are less than the rates for instant access savings accounts . Does it really cost more to 'manage' an ISA wrapped saving of £3000 than a non-restricted instant access £3000 savings ?

So back to pensions-

1) Remove the excessive and irrelevant documentation requirements.

2) Stop the excessive charges on basic money management.

3) Fund managers should recompense reduction in the value of funds by an equivalent amount to that they take when the fund value goes up.

4) Government should stop grabbing from pension funds, as in stop taxing dividends etc., and then keep the terms static - as pension money is locked in, the taxation changes are effectively retrospective.. No wonder people are looking for tax avoidance schemes.

5) Either make saving into a pension fund tax free when the money is saved and taxed when it comes out of the fund, or taxed before the money is put into the fund and tax free when the 'pension' is taken.

6) Allow the pension money to be managed by the pension fund owner as they wish without things like GAD limits.

Basically the concept of a 'pension fund' should be that it is money the owner has saved rather than spent.

As such there is no more justification for the government to control the use of that money when the owner wants to use it

than there is for the government to stop people buying food, magazines, books, phone services, and/or 'entertainment' facilities such as a Opera tickets, Cinema tickets, Roller, Bently, Porche, Ferrari, ocean-going yacht, personal plane, butler, mistress or other servant/companion

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