An email arrived during the week to inform me that my annual pension statement was available and I wondered if I even dare look at it? Not because of the performance of the funds over the year – I’m well aware of that because I check it online on an almost daily basis. No, it’s the fact that the statement will highlight how much I have been charged for the management of my money. Last year I almost fell off my chair when I saw what this amounted to – it was roughly 1% of the fund total. On paper, and when you say it quickly, this can seem almost reasonable. But, if your funds are heading toward the LTA (Lifetime Allowance) territory, that’s quite a substantial charge. No, let’s be honest, it’s a frigging massive amount of money – £10,000 p.a. – which may be charged every year for the next thirty years. Of course, many will feel that if you have a million quid in your pension fund then you deserve to be charged for the management of it, but really, of all the deserving people who might want ten grand of your money, is it the City who should get it? Just because they can?
That’s not to say that this fund is pushing the boundaries of the LTA – I might have died of shock if it was. As it is, I’m shocked enough that I have no idea whether 1% is a fair charge or not. Similarly, I have no idea what the charge is for, where it is incurred or why it is incurred. My pension is now a mixture of about 25% in bond funds and 75% in stocks and shares represented by (mostly) tracker funds. I would therefore assume there’s not much active management of these funds involved, so why am I being charged such a massive amount of cash for the “management” of it? One of the funds is actively managed by Fidelity (Global Special Situations), although they aren’t the provider for the pension. I assume FIdelity is charging me for this, but is that included in the 1% that my pension provider is levying? Or is that just being deducted as a charge within that fund’s performance? Maybe this information is buried somewhere in my T&C’s, but who reads that stuff? Like the current storm over privacy in social media, it’s not that they don’t tell you what you’re signing up for, they just do it in a sneaky way, burying it within forty pages of legalistic guff that ensures you’ll probably die of boredom trying to read it. I can’t understand why they wouldn’t want to explain the charges in a simple way – if I could see it, I might even believe it was good value. But because I don’t know, I’m suspicious, and suspect I’m being ripped off.
The sum I’ve been charged on this pension dwarfs just about every other monthly sum I budget for – cars, food, heating, council tax, spending money, everything. And, what’s worse, if the fund drops fifty or a hundred grand next year, I’ll still be charged an exorbitant amount for the administration of it. Heads they win and tails you lose. Either way, I’ll still be left with no idea of how this figure has been arrived at and whether or not it’s fair value.
I feel totally exasperated by this situation. Where do I start to find out if I’m being ripped off or not? Last year I posted in several forums, such as the Money Saving Expert one, asking if an overall 1% annual charge on a pension fund was exceptional. The answers, as far as I remember, were that it “Sounded about right”. Oh, that’s okay then. I should relax and not worry about paying a small fortune for a service that I don’t understand, while feeling guilty that it’s my fault for being too ignorant to understand it. But is it really?
I’ve seen it stated many times by many commentators, who understand the way these things work, that the fees in the finance industry are an absolute scandal. Margins in fund management are over forty percent. Tesco, not an unsuccessful customer focused business, makes a margin of around five percent. One of the main reasons for this is that Tesco are competing every day for customers on price and quality – they are not on the ‘phone fixing their prices to consumers with Asda, Sainsbury, Lidl and Aldi. Nor are they lobbying to be allowed to do so. As consumers, we can choose to shop where we want to based on what we can see and experience. It’s pretty transparent, and the absolute reverse of what we have in the finance industry.
I’ve also read recently of the outrageous fees that some consumers are being charged to take advantage of the “pension freedoms” with their fund provider. Seemingly if you want to regularly drawdown, or take a big lump sum up front, or just generally get your hands on your cash, the provider will gladly charge an arm and a leg for doing any of it. Not that they’ll be up front that it’s an arm and a leg that they’ll take – they might just carve a juicy slice off your arse instead. They’re not about to reveal exactly, in clear English, what cash they intend to take or why and where those charges are being incurred.
At the moment I’m not too sure what to do about this. I could write and ask for a detailed breakdown of where the charges come from, but suspect part of the answer may well be “Providing detail of charges for people like you”. And I doubt their response is likely to be, “Ye Gods, you’re right, we are charging far too much for what we do. Let’s reduce it by two thirds.”
I’d also like to know that if I decide to drawdown, say, £1,000 a month from this fund, then what will I be charged for that service versus, say, taking £12,000 in one lump sum? Or £120,000? Is it the same? They’ll probably tell me if I ask, but whatever the answer is I doubt I’ll be left with a clue as to why I should actually be charged anything for withdrawing my own money when I feel they’ve already been charging me for “managing” it to date. But I feel I should at least make my feelings known and threaten to switch providers if I’m not satisfied with the response. If millions of us did the same then it might change things. I struggle to think of anything else that will.