If you don’t want exit penalties at retirement – stop paying middlemen!

katie morley

The Daily Telegraph’s Katie Morley is running a typically campaigning piece picking up on stats released to Government that show that an estimated 2.2m pension savers won’t get the full value of their pension pot if they exercise pension freedoms as they choose.

I’m not sure if many of these savers will ever get the full value of their pension pot as this will have been decimated by various intermediaries over the years. Last year, I wrote about the long term costs of middlemen which have remained pretty level at 2%pa for about 100 years.

If the growth on your fund averages 10%, that means you are paying 20% of your growth to have your money managed and if growth averages 4%, you’re paying 50% of your growth to third parties.

In a high inflation/market growth environment, charges are ignored. In a low growth environment (like now) they are all too obvious, the only thing in investment that does not go down and up are charges!

If I’m sounding sensationalist, be aware that my numbers are from reputable sources, the London Business School hosted an erudite talk on the matter and the conclusion was that pensions abhor a vacuum. No sooner has one layer of middlemen been banished, than another enters the room to take their place.

With all the savings in technology, the consumer’s lot has remained the same, there are just others eating the pie.

Right now, the costs of what we are doing are only too clear as we try to use our pensions as bank accounts and find they are like financial penitentiaries. The Telegraph’s five demands, listed in the article, seem reasonable, but the insurers will point out that they’ve already spent your money on all those services you never used.

The services you bought and never used are principally to do with advice and the advice was justified by the complexity of the product and the complexity of the product was created to feed the need for advice.

What is more , the complexity of the product meant mingled fees which resulted in hidden costs which result in what we are now calling exit penalties.

These exit penalties are not being suddenly imposed, they were always in the contract and – for the most part – are there to ensure that the insurers can reclaim from you the costs they have incurred on your behalf on intermediaries you never used.

Should you be angry?

Well yes- because you probably had no choice. The vast majority of people who  have saved into personal pensions bought into a set of costs and charges they did not understand (certainly in terms of their long-term impact).

But who should you be angry with? Is it the insurers who dished out the money (to themselves and to all the other people with their fingers in the pension pot). Or about the other intermediaries, everyone from the brokers executing the trades on the funds, to the advisers selling the plans) or should the anger be directed at the Regulators who allowed all this to go on unchecked?

That all this is the result of 30 years of negligence on behalf of everyone  in the chain, there can be no doubt. But is there any remedy? Well we can start by thinking about the future, for – as I constantly bang on – nothing is changing.

You should be angrier that the costs are still being racked up

We are still paying 2% pa, the waterbed has a different shape and the lumpy charges have shifted, but it is still leaking your growth at an alarming rate and unless you – the consumer- demand a better kind of pension which does not have so many layers of intermediation – you will continue to pay away your growth.

Such a type of pension does not exist, at least for the retail customer, it is a collective pension which has people in charge who keep the intermediaries away so as much of the value of your savings are paid back to you as is humanly possible. It is the main use of the CDC legislation.

It exists in large parts of Europe and to our general disgrace, this kind of pension is being ignored by those who claim to have our interests at heart.  I mean the intermediaries who would share no part in it.

It is absolutely scandalous that nothing is being done to provide cost effective ways for us to spend our pension savings as a lifetime income.


Turkeys – Christmas

As a middleman myself, I know that we will not vote for Christmas, I know that we will go on promoting over-expensive super-intermediated drawdown and over regulated super expensive annuities and never give a thought to creating CDC structures which cut us out of the equation.

For that to happen, the likes of Frank Field, Harriet Baldwin and Ros Altmann are going to have to take a lot of middlemen out of the equation. It’s been three years since the Kaye report said what this blog is saying (but more eloquently) I hope it will not be another three before Government does something about it.

We need better, less intermediated, collective ways of spending our pension pots and we need it now.

A plea to those in charge at the DWP – please hurry up the CDC project and make sure we are not seeing the same headlines in 2045.

target pensions




About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to If you don’t want exit penalties at retirement – stop paying middlemen!

  1. Excellent piece. It raises one question for me, perhaps naively , if people have been paying for services they don’t use, does that mean that the people providing those services have sat there twiddling their thumbs?

    Or, perhaps, have there been fewer people actually working? In which case the companies can’t claim that the money has been spent.

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