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Pension providers accused of misleading savers over hidden costs
Pension providers are misleading savers over additional costs and charges on their pension schemes, says a report by the Royal Society of Arts (RSA).
It found 21 out of 23 providers it questioned failed to disclose information about the full costs of private pension funds when asked. According to the RSA, consumers were unaware that additional fees were eroding the value of their final pensions.
Although consumers were told about the annual management charge (AMC) - the fee fund managers take for their service during the year - pension providers failed to disclose additional charges for audits and custodial costs, as well as other hidden costs such as taxes, stock lending fees and broking commissions.
The RSA said that additional fees, such as an additional two per cent annual charge, could over the lifetime of a pension amount to halving its overall value. It found that individual consumers and businesses were unaware of the scale of the problem.
In addition, it found that under half of contract-based pensions providers - those offered to staff by employers - were willing to give the full details of charges.
"Even when costs are declared, it is not done in a way in which typical pension savers are likely to understand," the report said.
According to the RSA, money is typically held within a pension fund for 25 years. Based on this figure, a 1.5 per cent charge per annum would translate to 37.5 per cent over a pension fund's lifetime.
Talking to the BBC, the Association of British Insurers (ABI) insisted that its members revealed all costs, as required and regulated by the Financial Services Authority (FSA).
Otto Thoresen of the ABI said: "All employees who have contract-based defined contribution pensions have their charges disclosed in their key facts information when they purchase a pension."
The year-long investigation into the pensions industry concluded that pension savers were 'not being provided with adequate information.'
It suggested that trust and transparency could be brought into the British pension system by providing consumers with annual statements revealing all charges and costs. The bank account-style statements are used in other countries such as Denmark.
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