Miliband on pension charges

There are times when politicians should think very carefully before launching unsubstantiated attacks on subjects where their knowledge and experience is clearly lacking.

It has been reported that Labour leader Ed Miliband told a press lunch in Westminster yesterday that he is determined to tackle the “massive, massive issue” of high pension charges.

At the lunch, he claimed that parts of the pensions industry were charging investors 4 or 5% a year, resulting in those saving for retirement losing half of their pension funds.

It’s hard to know why Miliband has launched this attack.

He referred to research in the House of Commons library which does show that a pension fund would halve in value if an annual fee of 4% was applied. There’s no disputing those maths; what we must dispute is the widespread existence of pensions which charge anything near this much.

When the Labour government introduced Stakeholder pensions in 2001, they came with an annual charge cap of 1.5%. Once Stakeholder charges were introduced, other personal pensions typically saw their charges simplified and reduced to this level.

Over the past ten years, having reviewed hundreds if not thousands of pension arrangements from every source, I have yet to come across a pension policy with charges of 4 or 5% per annum. They might exist, but they are exceptionally rare if they do.

Where charges on pensions do tend to be a little higher than average is when more complex pension wrappers, such as Self Invested Personal Pensions (SIPPs), are used in order to access non-mainsteam investment options.

Even SIPP charges can be lower than personal pensions (or even Stakeholder pensions) for larger pension funds.

What really matters when looking at pension charges is value for money, not getting the lowest possible annual charges.

Ed Miliband appears to be looking for a campaign which appeals to the electorate and will give his poll ratings a much needed boost.

What all politicians need to ensure when they are commenting on pensions is that they get their facts straight first and that their scaremongering does not discourage people from saving for a financially secure retirement.

Pensions are an important topic. Getting value for money from your pension is always more important than low charges.

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