Pensions: Time to get a grasp on charges
When you look in the rear-view mirror and suddenly see a senior politician grinning at you, you know that what you are driving is a bandwagon. Those of us who put on the protective gear and spend time ferreting around in how this industry makes its money felt this way recently when Ed Miliband, who is the leader of something or other, attacked the pension industry for its charges.
Now, the way Ed did it was daft and whichever special adviser briefed him really does need 10 minutes on the naughty step. In particular, picking a tiny boutique fund because of its high charges was crass – there are plenty of large funds with high charges he could have had a pop at.
However not everything he said was wrong. Ed correctly identified that if you have higher charges in a plan, howsoever derived, you will get less at the end than if you have lower charges. This shows a grasp of arithmetic that I had hitherto suspected lurked in the Dear Leader’s mental arsenal, but not actually witnessed. So well done there. He also expressed concern about “predatory capitalism”, which presumably means he is not intensely relaxed about industrialists and bankers getting filthy rich. Good to know.
Pensions are a hot issue right now, and it should be no surprise to anyone that a politician with antennae as finely tuned as Ed Miliband’s is clambering aboard
The pensions industry has pounced on Ed with fury, accusing him of further reducing confidence in pensions, using crappy data and ‘not getting it’. Pensions are a hot issue right now, and it should be no surprise to anyone that a politician with antennae as finely tuned as Ed’s is clambering aboard. We should be no more surprised that the soundbite came first, and the story was crafted to fit it – never mind how accurate or appropriate it was. This is something that folks in other, more politically-charged industries, have had to live with for a long time. Headlines were wanted, headlines were achieved, debate was sparked. Job done. The accuracy of the initial thrust is neither here nor there.
But here is the thing. I think there was more accuracy in Ed’s briefing than perhaps is widely assumed. The target was wrong (or at least not worth the candle), but in terms of overcharging in pensions there is a big, multi-coloured elephant in the room. This elephant is a favourite of mine – I even have a pet name for it – and it has to do with insured pension funds.
For the uninitiated, insured pension funds are offered by life companies as baked-in investment options for their pension products. They are often included within the price of the plan, so the pension investor has a charge of 0.75 per cent (say), which includes access to 20 or 30 of the insurer’s own funds. In addition they can usually access a range of external insured ‘mirror’ funds at something approximating the usual retail annual management charge on top of their product charge.