Have you paid for advice that you have not received? If you are one of the two hundred thousand people who bought their annuity from the institution that held their pension, then you might have unwittingly been charged for advice that was never sought or given.
Annuity providers typically charge between 1% of the cost of providing pensions to cover the fees they pay to financial advisers. However, where savers do not take any advice the sum is still charged.
But the issue is not as straightforward as it seems. Annuity providers like Legal & General consider themselves under an obligation to encourage savers to take advice. Making it cheaper to take products without professional help does not do investors any favours.
The trouble is that pension charges are not clearly set out, and leave savers unsure of exactly what they are paying out to fund administrators. The problem is compounded by the fact that the public are just not that interested in pensions, so the issue does not get the billing it deserves.
For instance, a report by the think tank the RSA has recently shown that people do not appreciate that the annual charge for pensions has a cumulative effect – so the fund is eroded by, say 1.5% year after year, regardless of whether or not the saver makes any further investments into the scheme.
Ros Altman of SAGA claims that “pension charges are too high and too complex.” She believes that savers should be presented with an itemised bill of charges for their pensions when they receive an annual statement, which should be set out in a similar manner to a car repair bill.
It is worth noting that most savers would be more likely to query a car repair bill than query their pension statement!