Tuesday, October 23 16:20:42
The Report on Pensions Charges 2012 commissioned by the Government and out today shows that some people are paying well over the odds in charges on their nesteggs.
The report found that there is a wide variation in charges with individual pension charges the most expensive while most - but not all - occupational pensions charge a reasonable amount with often economies of scale prevailing with small scheme generally more expensive.
An individual with a final pension fund of 400,000 could lose up to 30pc or E120,000 in charges, it found.
There is considerable evidence of re-brokering (scheme review and amendment) in recent years which needs further examination, the report concludes.
The Minister for Social Protection Joan Burton launched the report, saying that its purpose was to gather information on the level of pension charges levied to assess whether charges are reasonable and transparent, to report on the findings and make recommendations.
"With our ageing population and with people living longer, planning and saving for retirement is more important than ever. A key part of this is to know what level of pension you are likely to receive in retirement and understanding the very significant impact pension charges can have on your final pension fund. The report shows that apparently small percentages can add up to big reductions in a pension fund over time," she said.
For example, if an individual age 35 saves E250 per month for a pension for 30 years, a fund of approximately E200,000 is created which results in a pension of about E10,000 per annum. Apply the average charge of 2.18pc per annum to this fund and the final fund is reduced by 31pc i.e. the fund is reduced by E62,000, resulting in a lower pension of E6,900 per annum. This impact would be significantly higher where the maximum charges apply.
"A further conclusion from the research is that trustees of schemes and individuals may not fully understand the charges and how they apply, and that the information provided on charges is not as clear as it could be," the Minister added.
"This is the first look at this subject and it is an area I will prioritise. Similar to any service, consumers should be able to compare prices and obtain the best value available".
Improvements in disclosure requirements, including those for pensions, were introduced in the Central Bank's 2012 Consumer Protection Code and these should enhance transparency for those consumers covered by the Code. There are also various ongoing developments at EU level which should lead to stronger consumer protection over time.