OFT and your Pension – What’s it all about?Posted on: 26 September 2013 by Andrew Stallard
A recent Office of Fair Trading (OFT) enquiry has found out that some pension schemes are expensive, complicated and offer poor value.(1) No sherbet Sherlock!
We've been saying the same thing for years! One of the factors that determine how much income you have in retirement is the level of charges, other factors being the amount you put in, time and crucially the fund performance. However, the charges made by the provider are a certainty in an uncertain world and frequently we recommend switching a client’s pension fund because of high charges. Even worse some old style pension contracts contain other nasty surprises! The worst schemes only return the premiums paid by the pension scheme member and not the growth on the investment if they die before retirement. This can leave the remaining loved ones with perhaps only a tiny fraction of the pension fund. A fund built up after a lifetime of work!
With all financial decisions if you are an individual or an employer you should shop around to obtain the best value for your hard earned pension savings. We offer that advice free to the Government, you don’t need to commission an expensive enquiry to discover the obvious! If you are unsure about the quality of your scheme, seek the help of a good independent financial adviser.
While one part of government has produced this report on expensive, complicated and unfair pension schemes, another part of Government (and all parties are responsible for this), has been advocating and rolling out to millions a work place based automatic enrolment scheme called NEST (National Employment Savings Trust) which some people see as expensive, complicated and unfair! The OFT have suggested the Department of Work and Pensions (DWP) might consider a 1% cap on management fees for auto-enrolment schemes, however, NEST will make a charge of 1.8% on every £1 paid in together with an annual management fee of 0.3% (2). This means that for those approaching retirement NEST will provide a scheme with charges approaching that of some of the old poor value schemes the OFT is complaining about!
You really couldn’t make this up and be believed! As financial advisers we welcome the process of automatic enrolment in work place schemes that should see people making more provision for their retirement. Britain’s workers deserve access to a high quality good value scheme, and a simple test would be for the first workers to use it to be the 650 MPs who work in the Palace of Westminster. We have a challenge for Steve Webb, the pension’s minister: If NEST is such a good scheme you use it first; let us all see MPs NESTing down for Christmas! We advocate high quality, low charging company pension schemes but the almost total lack of reform to public final salary pensions is the other side of the coin. Remember these schemes of which the MPs are perhaps the jewel in the crown, offer generous risk free pensions. Before Joe Bloggs can fund his own pension he will have to pay for these, through VAT, income and council tax. Due to greatly increased life expectancy an increasing amount of these taxes will be funding schemes unavailable to most of us, offering benefits far in excess of what most of us will receive.
To finish with the animal metaphor. NEST for MPs? No. You won’t see Turkeys voting for Christmas.
If you are an individual or business owner and you are concerned about your pension scheme contact Andrew Stallard at Worldwide Financial Planning. Call 0800 0112825, e-mail firstname.lastname@example.org or take a look at our website www.wwfp.net.
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