Hidden charges are slashing Brits’ pension pots, while providers are misleading savers about the effect of fees, a leading think-tank has warned.
A report published by the Royal Society for the Encouragement of Arts Manufactures and Commerce (RSA) suggests people are being not being adequately informed about the level of costs and charges.
Following a year-long investigation into the pensions industry, the findings show that 21 out of 23 providers denied there were any additional charges other than the annual management charge (AMC) and administration costs.
But report authors David Pitt Watson, a pension fund manager, and RSA researcher Harinder Mann, said the research indicates there is a huge danger of “inappropriate pensions being sold to unsuspecting customers”.
The report uncovers 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 RSA said.
The enormous impact of fees, where an extra two per cent 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 report concludes.
David Pitt Watson said: “For markets to work effectively, consumers need to know what they are buying. It is extraordinary that, after so many years, such a system is not in place in this country.
“It is vital people have access to straightforward, accurate, high quality information.”
The report found that in Denmark, a full clear statement is provided to pension holders and called on a similar system to be made available in the UK.
RSA researcher Harinder Mann said: “Our research shows that customers simply do not understand the pensions they are buying, because they are being badly misled about the true nature of costs and charges.
“Under these circumstances, markets will fail, customers will buy bad products and good pension suppliers are likely to be replaced by bad ones.”
Just days ago, the Association of British Insurers (ABI) blasted the Labour Party’s warning that hidden charges could erode people’s pension pots, dismissing the suggestion as “hugely misleading”.
Director general of the ABI, Otto Thoresen, had said remarks by Ed Miliband and were ill-timed, ahead of the launch of the national auto-enrolment workplace pensions scheme.
Free guide: Top ten retirement tips
Sign up to the Myfinances.co.uk newsletter to receive the latest financial news direct to your inbox.