Pension savers are paying £120 billion a year in hidden fees
Pension savers are paying shedloads in extra fees and they don't even know what they are, report claims.
Pension savers are paying up to 300 charges that amount to a whopping £120 billion deduction every year.
An investigation by the Transparency Task Force (TTF) has found that investment and pension schemes levy up to 300 hidden costs and charges. The fees are often so complex even pension schemes themselves don’t understand all the costs they are paying.
“The problem is so bad that some pension schemes are hiring forensic accountants now to get a grip on the value being lost to hidden charges,” says Dr Chris Sier, professor of practice at Newcastle University and a member of the TTF’s costs and charges team.
Hidden fees include administration, investment and risk management charges, client communication, legal, governance, regulation compliance and intermediary costs.
The complexity of these charges makes it virtually impossible for savers to work out how much they are paying in fund fees, according to the TTF. The task force is handing the evidence over to the Financial Conduct Authority who is currently running an investigation into charges.
“The only thing that stops this being a national scandal is the fact that it’s an international scandal,” says Andy Agathangelou, chairman of the TTF. “The financial services industry is notoriously complicated and it is opaque. It is no good charging people for something without having the decency to tell them what they are paying.”
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How the fees add up
Most savers are aware that when they invest in a fund or pension scheme they pay an annual management fee that is designed to cover the cost of running the investment.
However, the TTF found that the actual amount you pay is far higher than the fee you were shown when you signed up. This is because that initial fee doesn’t include all the costs involved in running the pension scheme or fund. Extras range from fees to cover accounting costs to the manager’s salary.
Fees are already under the spotlight because the Financial Conduct Authority is currently undertaking a market review of the asset management industry.
“All this can be easily fixed with the right regulation so whether you look at the problem as a market failure issue or a social justice issue you come to the same conclusion: the public interest isn’t being protected, and that needs to change, fast,” says Sier.
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