Fund managers’ charges eroding some pensions
The charges levied by some fund managers could be eroding defined contribution pension schemes by up to 17 per cent, according to a report by the National Audit Office (NAO).
The watchdog is calling for fund managers to be more accountable for how they manage the schemes, following a study into the regulation of defined contribution (DC) pensions.
The NAO found that a third of members of DC schemes found it impossible to assess whether the charges they were paying were competitive.
Members paying higher charges on their pension schemes could end up with a pension pot nearly a fifth smaller than members of less expensive schemes, even with equivalent contributions and stock market performance.
According to the NAO there is no single body leading the regulation of schemes.
The organisation criticised the Pensions Regulator for failing to measure its performance effectively and also found a lack of communication between the regulator, the Department for Work and Pensions, the Financial Services Authority and the Treasury.
The NAO conducted the study prior to the phased introduction of automatic enrolment this autumn, which will lead to all employers automatically enrolling workers aged 22 and above into a workplace pension.
Up to eight million workers, who do not currently have a pension, will be enrolled into a retirement saving scheme for the first time.
Amyas Morse, head of the NAO, said: “It is not possible to judge how well the Pensions Regulator is doing to protect the benefits of members of work-based pension schemes.
“This is all the more significant as the trend towards membership of such schemes accelerates.
“While the regulator’s overall approach is sound, its performance measurement system is not strong enough.”
Bill Galvin, chief executive of the Pensions Regulator, said: “We accept the NAO’s challenge to develop performance measures linked more directly to actual economic outcomes for members, despite the significant timescales and range of factors involved.”
The Department for Work and Pensions also said it would consider the recommendations in the NAO’s report.
According to Money Mail, poor returns on pensions over the past five years have significantly eroded pension funds.
Savings in a typical pension scheme will have earned just £1.36 a year on every £100 saved.