Pensioners 'ripped off in old age' due to 'unfair' fees

Britain’s pensioners are paying £1.5 billion a year more in “rip-off” fees to pension fund managers than they need to, according to a new analysis.

The charges applied by these pension fund managers to choose and administer investments can vary wildly without justification.

Analysis conducted by data analytics company ClearGlass found some pension fund plans are paying up to 14 times more for the same investment product compared to others.

Chris Sier, chief executive of ClearGlass, told the Financial Times: “Some clients are being treated bloody unfairly.

“Asset managers appear to price in an extreme range and offer different clients vastly different prices for the exactly the same thing. The result is some clients are effectively subsidising the prices offered to others.”

The fees paid by pension funds are important as they can dramatically cut the eventual payouts to savers once they reach retirement, making them poorer in old age.

The research looked at the actual prices paid by 688 private and local government pension funds representing £550 billion in assets, or about half the market, across 629 managers and 38,000 fund strategies.

Mr Sier, who was appointed by the FCA in 2017 to chair a working group on disclosure of costs and charges for institutional investors, estimates schemes could be £700m a year better off if they all secured the best deals, rising to £1.5bn if the findings were scaled up to cover all 5,000 direct benefit pension schemes.

Historically, the precise charges paid by thousands of schemes to fund managers are not typically revealed, meaning that plans can unknowingly end up paying much more for a fund product than they need to.

Among the findings of the new analysis, one pension fund was found to be paying six times as much for a fund tracking a fixed-income government bond index as the cheapest market price for the same product.

Another pension fund was paying seven times as much for a listed passive UK equity fund as the most competitive deal on the market.

One asset manager, which was not named, had some pension clients that were paying three times as much for a listed passive UK equity fund as the manager’s cheapest deal.

The research also found that one pension fund was paying 14 times more than the lowest price on the market for a fixed-income absolute return fund.

Mick McAteer, a former board member of the Financial Conduct Authority and now co-director of think-tank the Financial Inclusion Centre, said the analysis revealed that some pensions funds were being “ripped off” and that some pension fund consultants were “clearly not doing a good job on behalf of clients”.

He said: “I would hope (this analysis) would serve as a wake-up call for trustees . . . We know high charges will have a detrimental impact. Secondly, let’s hope it helps speed up the much needed regulation of investment consultants.”

Industry body the Investment Association, which represents fund managers, said its members operated in a “highly competitive” market where strict regulation ensured transparency of fees and underlying costs.

Chief executive, Chris Cummings, said: “The industry has supported a range of initiatives over the last decade to enhance cost disclosure and these have led to the UK being one of the lowest cost countries in the world to invest.”

He added that pension scheme trustees had a legal obligation to “seek out and follow the advice of these professional advisers who drive hard negotiations with managers on fees on their clients’ behalf”.