Guy Opperman a DWP Minister was interviewed this week outlining his views on pension and the pensions sector. More information about what he said is on the link below.
“The government and the pension sector need to work in partnership” to enable savers to take control of their future, pensions and financial inclusion minister Guy Opperman has said.”
I have a number of concerns about Guy’s words it may help if I provide some context on his words.
This article is available as a PDF Download – Guy Opperman Talks Rubbish About Pensions
Pension Providers are Incredibly Profitable.
Guy as called for a partnership that allows for individuals to take control of their future.
Interesting words. We’ve had personal pensions available for over thirty years and these have changed much during that time.
Problem for the consumer is that these pensions are incredibly high charging and benefit the providers more than the consumer. I’d go as far to say that these providers are working in a no risk, subsidised business and are incredibly profitable because of it.
Let’s look at several of the UK’s largest providers. Income for these providers is derived mainly from the pension funds under management, if not today then historically.
Much of these profits will be drawn from pension funds managed by them and with historically high charges inside plans that these major providers refuse to reduce; and that Governments have promised to deal with but have not.
Let us look at some figures.
- Aviva profits £2.254b for the last year reported
- Pheonix profits for the last year reported £52m
- Legal and General profits for the last year reported £2.065b
- Standard Life profits for the last year reported £808m
The problem is that various Labour and Conservative Governments have continued to treat these pension providers very favourably.
Lately with Pension Freedoms being introduced – therefore creating more products to sell and helping the industry via mandatory advice on some pension transfers and mandatory pension contributions for employees and employers with no real reduction in charges under Auto Enrolment.
The problem with pension charges is that they serve the provider very well and are to the detriment the consumer of pension products, in fact the legislation of offers a guaranteed income stream for the providers for the lifetime of the pension owner.
There is a considerable amount of dishonesty in relation to these charges is becoming apparent due to the changes in EU legislation – MFID II
No doubt all of the ministers within the Department of Work and Pensions would like every person living in the UK to be making the maximum amount of pension contributions there are a number of problems.
Government keeps changing the rules around pensions causing uncertainty.
Pensions are a one sided contract that provide a massive guaranteed income for the provider whilst offering no guarantee to the consumer.
The provider gets access to a fully charged fund for a long period of time and that money does little to benefit the larger economy.
Pension investment returns on average have been consistently poor on average
Adviser charges add further costs to pension planning taxation on spending has been increasing in recent years along with a squeeze on income directly because of Government policy.
The truth about pension taxation – they are tax deferred and not tax free. The Government offers some help in the form of it’s loan of tax relief and when the pension is finally drawn down and becomes taxable the Government gets back it’s tax relief and hopefully a return on its investment.
With pensions it is close to a no lose position for the Government with the offer of tax relief and for the pension providers with their G U A R A N T E E D long term income both whilst the pension is growing and then when benefits are drawn.
The poor pension owner pays all of the charges and bears all of the risk.
Being a pension provider is one of the few no risk businesses available in the UK.
Other investment options are never outlined, like the use of ISA”s or making sure that the Capital Gains tax allowances are utilised and that debt is repaid, all of these make more sense for the average consumer before making pension contributions.
Guy has deliberately made this speech to call for the industry to benefit even more than it already does yet the Government does nothing to cap fees, nor does it use it’s own organisations to help consumers (the FCA the financial regulator, the Pensions Regulator or the Money Advice service). The merging of these organisations will do nothing to help the poor old consumer because they have sole focus on telling them about the industry and not the truth about money.
Go over to the Money Advice Service and search for Pension Charges. Lots of information but nothing specifically telling you how much you are likely to pay despite having had a number of years to put this information online. There is no section of the Money Advice website that will tell you to expect at least thirty percent of your fund to go in charges during the lifetime of your pension which is close to the truth.
Nor does it tell you that the final pension will not be guaranteed in any way, shape of form. But you’ll still pay the same in charges.
There is also the issue of Banning Commission – which the Money Advice Service also mentions. This commission plays a big part in the level or charges to your pension. Now, the Government thinks it’s banned commission, yet a fee paid by the provider to the adviser which is taken from the fund of the advised is now called a fee.
Let me remind the Minister.
a sum or percentage of what has been paid that is allowed to agents, sales representatives, etc., for their services:
a charge or payment for professional services:
It can’t be both.
It’s wrong for a DWP Minister, and elected official to be this biased in any interview. It is also wrong to tell consumers that the Pensions are the one method to plan for retirement, when there are many that need to be considered.
Richard Smith – Moneytrainers.co.uk/contact