Don’t be blinded by ‘bargains’

Martin Palmer, head of corporate pensions marketing at Friends Provident, defends pension charges.

The season of change is upon us and I don't just mean a new leader for the Labour party. Winter will be here before we know it but the one thing chilling me most is the persistent outrage at pension charges.

There has been many an article bemoaning the "greedy pension giant eating into the pots of millions of workers" which on face value makes eye-watering reading. Unlike thousands of savers in the UK, I know many of the reports don't tell the full story. Instead some reports focus on charges levied at the more expensive funds, which only affect a small part of the population.

It's this knowledge gap the pensions industry is battling hard to address in its efforts to restore confidence in long term savings in the UK. We providers need to encourage savers to engage with us so they can help us develop solutions which better meet their individual needs.

The confusion around pension charging is an age-old one of comparing apples with pears, the result of which is consumers thinking they are paying through the nose for something when they are not.

Take for example a personal pension. Typically a customer will pay no more than 1% annually, including advice costs paid for via commission if standard investment options are used. The bigger charge comes only with more expensive funds.

On the other hand, individuals can take the occupational pension route. Here the fees for such pensions (GPP/group stakeholder and bundled occupational DC) are even lower. Schemes are practically all written with management charges below 1%; indeed many of them, and certainly the larger schemes without commission, would be below 0.5%.

These charges include all administration, fund management and marketing costs and in some cases even advice, all of which is fully disclosed to customers and their advisers. So, they represent incredibly good value for money, and in most cases are significantly lower than those charges applied to ISAs and OEICs. They compare very favourably to the proposed NEST charges which include a 2% initial charge in addition to the AMC.

However, all this focus on charges is missing the point. The most important thing is employees must save for their future and it's crucial this misleading noise doesn't dilute the message.

Rant aside, the bigger challenge is for our industry to work collectively to raise awareness so customers can make their pension work for them and benefit from tax relief and matching contributions from their employer. We need to provide guidance so customers start to engage with their savings and invest in the right types of assets.

By encouraging people to take more of an interest we can move towards a well-educated and engaged nation of savers. Pensions offer people the freedom to continue the lifestyle they are accustomed to when they retire. My worry is by referring to typical initial charges of 4-5% people will lose interest and confidence, or avoid pensions altogether. This could mean even more articles in the future focusing on the large numbers of people who have not saved for their future and are living a meagre lifestyle in their retirement.