Pension fund managers 'hiding' £3.1bn trading costs

Pension fund managers are creating £3.1bn in undisclosed extra costs to consumers by excessively trading assets, new research has suggested.

SCM Private claimed it found pension funds hold assets for an average of nine months, with trading costs on average 0.7% of the fund per year, or £3.1bn across the industry.

The wealth manager said this level of trading and cost is unnecessary because similar returns can be obtained by investing in index funds, according to its research.

SCM Private said the actual, but undisclosed, cost of investing in pension funds is on average 2.34% a year.

Its estimate combines an average annual management charge (AMC) of 1.34%, plus average administration fees of 0.3% and the hidden trading cost of 0.7%.

With the average 15 year return on unit trusts at just 4.2%, SCM said the constant trading is eroding much-needed investment growth.

Alan Miller, chief investment officer at SCM, (pictured), said: "The hidden pension fund dealing costs could be removed simply through investing via index funds.

"If we had an efficient, open and transparent savings industry in the UK maybe people could retire without having to face their later years in comparable poverty.

"Levels of transparency within the savings industry are shockingly poor both in terms of transparency of fees and transparency of investments."

Miller called on the Financial Services Authority and fund management trade bodes to force fund managers to disclose the full costs of trading within pension funds.

SCM analysed 1,287 ten year old UK individual pension funds using data from Morningstar.

The firm's analysts then calculated the average cost of buying and selling assets in terms of spreads, impact costs, commissions and taxes.

A spokesperson for the Association of British Insurers said the body is "committed" to working with the government to ensure pension reform is a success and helps people save.