Regulators are investigating how to ensure retirement savers are not ripped off by high pension charges.
The Financial Conduct Authority is looking at the fees charged to savers by advisers and pension providers.
The FCA believes many savers do not understand they are paying the charges, what they are for or how they impact on their pension nest-egg.
The idea is that advisers and pension firms must give customers a statement of charges every two or three years so they can make informed decisions about their retirement savings.
The FCA explained that the worst-case scenario is a customer paying out fees over a decade or more without realising how their retirement was affected.
Cancel charges
Pension savers have a right to review or cancel fees under the recent Retail Distribution review, which revamped how pensions and other financial services are marketed in the UK.
The problem the FCA sees is that customers do not know they have this right and do not understand how the fees are charged.
Another concern is the fees are a back-door method of charging commission that was banned under the RDR.
An FCA spokesman said: “part of the RDR promise was a pledge to go through the financial services industry to see how the changes impacted customers and to change anything that we felt was unfair or difficult to understand.
“We are doing just that over pension charges and advisor fees. We do not plan to change the charges, but to make the customer more aware of them and how they can manage them.”
Focus groups
Many IFAs are upset with the review because they resented the introduction of RDR in the first place and now see the FCA is tinkering with rules that most IFAs are complying with.
The problem is some pension companies are already stripping out thousands of pounds from pension funds as ‘fund management’ and ‘administration costs’ regardless of the performance of the investment.
One figure for an average pension pot suggested a provider could earn £29,000 in fees over the life of the scheme – which could add up to a third of the savings.
Add to that adviser fees, and many pension customers seem to be lining other people’s pockets rather than building a pot to fund a reasonable retirement.
Currently, the FCA is running surveys and focus groups to establish how customers regard pension charges, before looking at whether any further action is necessary.
About John Cassidy
