OFT reports excessive management fees for pensions
- Stuart Miles, freedigitalphotos.net
The capacity of the financial services industry to skim money off the rest of us without a qualm is no longer a surprise. The latest revelations focus on the pensions sector, where the ludicrous fees charged for managing pension funds are depleting the retirement nest-eggs of hundreds of thousands of Britons. Fund managers are living it large off the money that people had hoped to survive on after retirement.
The Office of Fair Trading has highlighted the situation. It reports that 1.4 million people in pension schemes set up before 2001 will pay an extra £1.9 billion in additional charges before they retire. Pension providers are also increasing management fees on the pensions of members who change jobs. With the employment situation much more fluid than it was in the last century, it is apparent that providers are exploiting people who make several career moves in their working lifetime.
Clive Maxwell of the OFT said: "We have found problems in relying on competition to drive value for money for savers in this market." In short, the providers operate a cosy cartel where everyone profits, while savers suffer. "We've worked closely with the Government, regulators and industry to agree a set of measures that we believe are an important step in helping to ensure that savers get better outcomes."
With many pension funds already under-performing, the inflated management fees are adding insult to injury. The OFT has been criticised for being too cautious to call for an immediate cap on management fees. The Conservative-led coalition government is now caught in the dilemma of whether to protect the interests of the pension-holders who vote for them or the pension companies with links to the Party.
The government is presently trying to encourage more workers to opt for workplace pensions in order to plug the pensions gap. The fact that a substantial percentage of contributions are going into the over-stuffed pockets of fund managers is hardly the best inducement to save for retirement.