You may be aware that so called hidden pension charges have received quite a bit of attention in the press lately. Labout leader Ed Miliband weighed in attacking pension companies who “rip off” their clients through excessive fees and charges, suggesting some pension scheme members are paying up to 4%-5% in fees and charges, knocking thousands of pounds off their pension fund.
So what are we to make of this, no doubt political, noise-making?
Miliband’s claims no doubt carry an element of truth, though the extent of his claim is highly debated and likely to be exaggerated. It is certainly true that many pension contracts, especially older ones, lack clarity on the actual charges levied and even if an explanation was provided you would need an army of actuaries at your side in order to understand them. However, let us not fall into the trap of lumping all pension schemes into the same boat. You no longer need a traditional life company to make pension contributions and many newer pension contracts have transparent charging structures which are simple to understand.
Keeping things in perspective
As always, it is important to maintain perspective and remember that
- Pensions remain an extremely tax effective way of saving for retirement. For each £100 a basic rate tax payer contributes to a pension scheme (up to certain limits), the government adds £25, an instant return of 25% on the investment. Higher rate tax payers can claim further relief.
- You don’t get anything for nothing and pension providers, like everyone else, need to cover their costs.
Above all else, we should not let all this attention detract from what is really important – the need to make adequate provision to fund life in retirement. People are becoming more and more aware that relying on state provision alone is likely to lead to a significant reduction in standard of living in retirement and the need to do something about it.
There will always be quibbles over pension charges and constant negative press leaves people jaded about the prospect of contributing to a pension. This shouldn’t distract from the need to make provision for retirement and to be intentional and innovative in doing so.
Are you jaded about pensions? Leave us a comment below.
The views expressed in this post are those of the author only and are not necessarily those of I Planning Wealth Management Ltd. All material in this post should be considered as general information only and should in no way be construed as a recommendation of a specific product or course of action. Each circumstance is different and professional advice tailored to your circumstances should be sought from a qualified financial adviser.