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What is the real cost of a pension?

Since a report by the Royal Society for Arts (RSA) said 21 out of a sample of 23 firms failed to disclose the full investment costs of pensions when asked there has been much debate about pension charges. The Association of British Insurers responded that its members revealed all costs, as required by the regulator.” All employees who have contract-based defined contribution pensions have their charges disclosed in their key facts information when they purchase a pension,” said Otto Thoresen of the ABI. “This is required by FSA rules,” he added.

When the RSA questioned the 23 pension firms, all of them said that customers’ accounts had to pay an annual charge, and other normal overhead costs for administration, legal and accountancy services.  But only two firms acknowledged that there would be other one-off or variable fees, such as the costs of stamp duty on share purchases, or the stockbroking fees associated with share and bond trading.

The RSA said its report uncovered, “how those selling pensions fail to reveal what is charged for such items as audit and custodial costs, and other hidden costs including taxes, stock lending fees and broking commissions”.

“Furthermore, even when costs are declared, it is not done in a way in which typical pension savers are likely to understand. “The enormous impact of fees, where an extra 2% annual charge can, over the lifetime of a pension, result in a halving of pension benefit, is not understood by individual consumers or by small employers,” the RSA added. IFA’s from Enable can help you understand the cost of your pension.

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