The great pensions cash snatch
WORKERS are having more than £232million a year snatched from their pensions with hidden charges, a damning report revealed yesterday.
For t he first t i me, an independent report has laid bare the ‘guilty secrets’ of rip-off fees that cripple savers whose cash is held in more than a million pots.
It means the average worker could see almost a third of their life savings snatched in excessive fees, while schemes have up to 38 charges that can hit savers.
The report, by the Independent Project Board ( I PB) described how one in four pension pots incur charges of more than 1 per cent a year.
Some 200,000 of these are facing charges of 3 per cent or more. And thousands of savers hoping to take advantage of the pensions revolution and cash in their savings could be facing
sky-high penalty fees upwards of 10 per cent.
Pensions minister Steve Webb yesterday said the report exposed the industry’s ‘murky past’. He added: ‘It takes a special type of genius to create ever more obscure ways to take money off people, and consumers don’t have a clue this is happening.
‘The simple stand-out fact for me is that pension firms can apply 38 different charges, 38 different ways to take money out of your pension.
‘Companies have been able to get away with these hidden charges because they are just that – hidden, and invisible to the consumer.
‘You would need a doctorate to understand the different charges. We need much greater simplicity.’
He said tough laws would have to be implemented if insurers failed to tackle high annual fees, claimed the review’s suggested two-year timetable for reforms was ‘too slow’ – and warned that schemes which do not voluntarily lower their fees could be named and shamed.
For years, the Mail and other campaigners have warned of the dangers of high hidden fees levied by investment managers and pension funds.
Last year, the Office of Fair Trading announced it would conduct an in-depth investigation in to these charges. Yesterday the IPB published the bombshell report outlining how much cash was docked in fees from thousands of workplace pension schemes.
It discovered that 1.5million nest eggs – worth £ 5.8billion – were at risk of high pension charges of 1 per cent or above. At the lowest level this could mean £ 58million a year is being docked in charges. Almost 00,000 of these faced charges in excess of 3 per cent.
Worst affected are savers with pots of less than £10,000 who no longer put money into them, the report found.
Fees of 10 per cent or higher are being imposed when someone wants to move their pension to a different firm. Around £800million belonging to savers aged over 55 could be hit. This will be a blow for savers hoping to cash in on the Chancellor’s pensions revolution from next April.
They would have hoped to take their retirement savings as cash but may face losing £10,000 from a £100,000 pot.
Richard Lloyd, of consumer group Which?, said: ‘Billions of pounds are stuck in rip-off pension schemes.’
An Association of British Insurers spokesman said: ‘Exit fees are not a source of profit, they cover costs paid by the provider to set up the pension.’