Savers lose more than a third of their pension to hidden charges

SAVERS’ pension pots are subject to hundreds of hidden charges in addition to the headline annual management fee, which could result in more than a third of their nest egg disappearing over the lifetime of the investment, a study has found.

The weight of fees on personal pension savings is far higher than previously thought, and comes as millions of employees are having to work into old age after years of record-low interest rates wiped out returns.

The year-long study was completed by up to 25 pension industry professionals, academics and legal experts with the findings to be presented to regulators next month, according to the Financial Times.

The research unearthed a plethora of unexpected fees including bank setup costs, tax advice fees, transaction charges and fund administration, legal, compliance and governance fees.

“The shocking news is that we have uncovered more than 100 types of costs and charges being routinely applied to pensions and investments, many of which are being hidden from the consumer, which is just plain wrong,” said Andy Agathangelou, founding chairman of the Transparency Task Force, which conducted the research.

The study was undertaken by professionals in the industry who had become increasingly frustrated with the lack of transparency from the pension industry on the levying of ancillary fees.

“Our clients, who are pension scheme trustees, frequently come up against a brick wall when they ask asset managers for cost information,” said Judith Donnelly, partner with Squire Patton and Boggs, a legal firm. The researchers scrutinised the entire life cycle of a pension from the initial setup to the winding up as retirement approaches. Each fee was itemised and reviewed during the year-long project.

The pension fee bombshell rounds off a dismal week for the industry after Andy Haldane, the Bank of England’s chief economist, admitted that pensions are impossible to understand and are harming Britons’ efforts to save the right amount of cash for later life.

Mr Haldane said that consumer confidence in the financial industry had been damaged because even he cannot make “the remotest sense” of most pension deals. “I consider myself moderately financially literate – yet I confess to not being able to make the remotest sense of pensions,” he said.

In a scathing appraisal, he added that banks should use less jargon and speak more clearly because the system has been damaged by the loss of the personal touch on the high street.

People in their mid-50s may be forced to wait an extra three years to retire under proposals by the architect of the new flat-rate state pension, Lord Turner, who has suggested their pension age should be raised to 70.

Lord Turner, the former chairman of the Pensions Commission, said reforms to raise the state pension age should be accelerated, meaning people would have to work longer but in return for a bigger state pension. Under current projections, people in their mid-50s can expect to retire around age 67, as the state pension age is expected to rise to 68 by 2028. Lord Turner said he would meet John Cridland, who has been charged with reviewing the state pension age, to discuss his proposals.