Ed Milliband, leader of the Labour opposition, has launched a stinging attack on the UK pension industry, bringing a furious response from trade bodies and industry experts.
In a speech last week Mr Milliband said that the pension industry was the next “massive issue” following banking and phone hacking scandals, citing “rip off” high charges.
Mr Milliband pointed out, rightly many would say, that higher charges lead to smaller funds and used research from the House of Commons which showed that an annual charge of 0.5%, on a monthly contribution of £50 over 40 years, would lead to a fund of £32,398, but that if the charge rose to 4% the value of the pot would fall by more than 50% to £15,964.
Whilst no one argues that higher charges can often mean lower fund values the pension’s industry was quick to point out that very few pensions have a charge approaching anywhere near 4% and that the example used was obscure and unrepresentative of current pension charges.
Mr Milliband said: “I am very worried about the scale of administration charges that people face. What you find in some parts of the industry, not all parts, clearly, is that people are facing not 0.5%, which is the benchmark administration fee that we put forward in the government scheme when we were in government, but 4% or 5%.”
“Four or 5% might not sound enormous, but it could mean up to half of people’s investment is wiped out and we have got to do something about that. We have got to drive down these administration charges and we can’t allow people to be ripped off in the way some people are.”
Shadow Pensions Minister, Liam Byrne, echoed his leader’s thoughts in a recent report into UK pensions, where he also critisised the new auto enrollment system, due to start for larger firms later this year, despite the fact it was his government which drew up the rules.
The pension industry was quick to leap on Mr Milliband’s comments accusing him of scaremongering and being selective in which facts he used to support his arguments. Pension experts pointed out that a 4 – 5% charge is not the norm, and that the example used by the Labour leader, of a single fund from investment manager Neptune, was unrepresentative of most people’s pension planning.
Otto Thoresen, Director General of the Association of British Insurers (ABI), said: “It is absolutely wrong for Ed Miliband to imply that a 4% or 5% pension charge is normal. Pension charges have been falling steadily for the last decade and are continuing to fall.
“In newly set-up automatic enrolment schemes the average annual management charge of our members is 0.52%. The average annual management charge for existing schemes is 0.77%. For many other existing schemes, both large and small, charges can be lower than 0.3%.
“Nobody in the pension industry would defend a charge of 5% for a standard new pension and we would ask Ed Miliband to write to us with details of the schemes that he is referring to.
“The pensions industry is absolutely committed to ensuring that charges are as low as possible and that customers understand what they are paying. We will continue to deliver further change but this type of misinformed attack does not reflect the considerable progress the industry has already made.
“This is a critical time for pension saving in this country as we face the challenge to make the automatic enrolment reform, introduced by the last Labour government, a success.
“Scaremongering about charges runs the risk of putting off many people from saving into a pension, which is critical for their financial future.”
Speaking to Money Management, a publication read by Independent Financial Advisers, Macbeth Currie senior consultant Duncan Philp says: “The only way I could see a charge at around 5 per cent is on a top end Sipp and that is because they are more complicated, so that is a reasonable charge for schemes that need more work. For run of the mill schemes charges are far lower than that. The typical charge I see is around 0.9 and that includes paying the adviser. Miliband’s comments are ridiculous, he is just trying to scare the public.”