Personal Pension  

Schroders warns obsession with cost limits choice

Schroders warns obsession with cost limits choice

Crisis warnings have been sounded by providers and advisers over the lack of education, choice and availability of advice in the pensions market.

James Rainbow, head of UK financial institutions and strategic accounts for Schroders, said: “As an industry we have focused on cost at the expense of value, which has reduced choice in terms of funds that can meet the long-term investment needs of drawdown clients.”

One pension master trust he had visited claimed its choice of available investments had shrunk from 60 to less than 10 “purely on the basis of cost”, following the introduction by the government of a 75 basis point cap on occupational pension scheme costs.

Article continues after advert

With suggestions that the cap could reduce to 50bps, Mr Rainbow warned that would “wipe out any active management at all” in workplace pensions.

Mr Rainbow said: “This cannot be a good outcome, when advisers can only economically serve the higher end of the market, where we as an industry have not kicked back against the focus on charges, where we have not defended the value inherent in this and in advice.”

Fellow panellist Colin Hart, independent financial planner and group director for Hamptons Financial Management, said: “I would rather have my clients pay average charges for good performance, than low charges and average performance.”

During a panel debate at the FTAdviser Retirement Freedoms Forum in Birmingham, speakers said while adviser delegates would be aware of a possible crisis in pensions the general public has failed to grasp the seriousness of the problem.

“To the majority of the public, it does not yet seem like a crisis, but statistics show people are sleepwalking into one”, Toby Nangle, Columbia Threadneedle Investments’ EMEA co-head of global asset allocation and head of multi-asset, said.

“They look at their parents who seem not to have had to save - the employer and the state did everything - but most of us have to save and save more than ever before.”

He said auto-enrolment was a start, but pot sizes would still be small as contributions are not enough and volatility was a key issue, especially with regard to drawdown pots.

Mr Nangle said: “People are concerned about investment risk and worried about the word ‘volatility’ in and of itself, but they need to understand how it works, how it affects portfolios and why they will need some risk assets in retirement.”

Mr Hart agreed: “There are roughly two groups of people, the savers and the spenders and somewhere in the middle there is muddy water.”

He gave examples of clients and prospective clients who had considered choosing drawdown post pension freedoms, but without really understanding the consequences.

In one case, a 60-year-old with an £80,000 pot wanted 25 per cent tax free cash and then to draw down £15,000 each year - until Mr Hart asked them “and what will you live on for the rest of your life?”