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Where’s My Pension Pot? September 20, 2013

Posted by Audit Monkey in The State of the British Nation, Working Life in Britain.
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The Daily Telegraph Finance Section has been focusing its attention on issues concerning personal pensions following an investigation by the OFT (Office of Fair Trading). Two of the main conclusions were that members in some pension schemes initiated before 2001 were being hit with high hidden charges. Pension firms were also increasing charges for those with deferred pensions. (A deferred pension arises when you change employer and leave your old employer’s pension scheme. These days it is possible to stay in some scheme irrespective of your employer but for old style final salary pensions this isn’t an option.) The full article can be read here. Some observations.

One. Why an earth is the OFT getting involved? Surely this is a FCA gig? Has the OFT lost its way or just butting due to the lack of work? The pensions industry must be beside itself having to deal with the PRA, FCA and a FCA clone in the guise of the OFT.

Two.  The industry has known about the need for adequate disclosure on charges in policy Terms & Conditions for some time, as mandated by the Regulator.  In response, most providers have cleared up their act, ensured their policy conditions were compliant or written to policyholders disclosing deductions and charges, warts and all.  This said, from experience, some pension charges on schemes initiated pre-2001 and even those post 2001 are outlandish, e.g. admin charges as well as management charges, and allocation deductions.  In recent years, HM Government cottoned onto this and capped management charges at no more than 1% on Stakeholder pensions when they were introduced.  I doubt this was not entirely a noble act but a stab at making private pensions more attractive to the populus over the meagre state pension and to decrease the State’s pension liability time bomb.  Moreover, for the older pension schemes, as contributors have become annuitants, got lost in the system, deceased or forgotten about their pension, unscrupulous or high charges haven’t been a big issue for the pension providers in the grander scheme* of things.

Third.  However, I do concur with the OFT on the issue of management charges on deferred pensions.  From personal experience, as I’ve changed jobs, I have several pension pots on the go.  One would have assumed that when your pension contributions ceased, e.g. as you’ve left Acme Ltd and joined Hogwarts Ltd and taken up a new pension with a different provider, that the pension provider for the Acme scheme would have stopped the clock and stopped deducting charges.  Alas no. Imagine my surprise circa 2009 after the crash, when I received by annual pension statement for a deferred pension held with Legal & General.  Not only had the value of my pension pot decreased by several thousand pounds due to the collapse of the share market and decline in equities, but my pension pot was also decreasing due to the deduction of management charges.  I think the phrase is ‘double whammy’ applies.

Not doubt I will discuss pensions again, but this will suffice for now since it’s nearly midnight on a Friday night.  I’ll correct any grammar errors in due course.

*no pun intended, scheme, pension…

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Comments»

1. ITauditSecurity - September 21, 2013

I’ll take a monkey at midnight!

I hear ya. I have a pension at a previous employer, but no mgmt fees. You just can’t trust anyone any more to do the right thing, which is why auditing is a noble profession.

Know why it’s noble? Cuz usually, the answer is an auditor’s question is either NO, we have no controls, or a bunch of BULL about controls they really don’t have…

The only grammatical I saw was “when I received BY annual pension” – change BY to MY.

Cheers to my favorite monkey!

2. itmonkey101 - September 23, 2013

pensions? It’s all b*llocks. A mate of mine hasn’t got one as a deliberate act. A rational choice as he figures the government likes to splash our hard earned on folks who don’t make provisions for themselves so he’s going to go for a slice of that pie when he hits retirement (will probably be 75 the rate its going). A bit high risk for me so instead I am keeping the financial services industry in fat bonuses thanks to the fees they are raking off for my tracker investments. Meh!

3. Audit Monkey - September 25, 2013

IT Monkey – well, the problem with your ‘friend’ is that there is a big assumption that the government a) will be paying a pension and b) that it will be sufficient to live off! Personally I foresee greater pensioner inequality in years to come between those who have made private pension provision and those who haven’t, the latter being reliant on the State pension. Ironically, pension auto-enrolment will accentuate the gap between those who have a pension and those who haven’t bothered or not economically active.

The rub will be that government will provide for those who have no private pension so that they are not impoverished. However, given the government debt and continued budget deficit (go figure), unless the government of the day taxes Joe Public and Joe Corporation to the hilt or cuts public spending, there has got to be an painful correction at some point. Therefore, I can only see public pensions deteriorating in real terms in the next couple of decades.

4. itmonkey101 - September 27, 2013

Then we better prepare to be taxed to the hilt as that is what our politicians like to do to us..


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