The hidden costs of charges are pants!


High charges are pants

Yesterday’s Moneybox with Lesley Curwen was a cracker. It brought together the voices of a number of investors together with the views of Michelle Cracknell, Chris Sier and Gina Miller. All were clear and interesting

But the best contribution came from Jeff Houston , Secretary of the LGPS Advisory Boardad  who cited the West Midlands Pension Fund and made the issue real. West Midlands thought it was paying £11m but discovered it was paying £90m in investment fees. It  has subsequently brought this cost down by £30m. The £30m saving is being put to work keeping the streets of Wolverhampton clean, the libraries of Dudley open.

High charges are pants, as indicated by the pant-like illustration given us on the MoneyBox website!

pants 2

In total the LGPS pays £1bn in fees (Jeff admitted even this may not be the whole iceberg),  While Jeff ruled out suing fund managers – he promised some tough conversations to come.

The council tax payers and those benefiting from the services of local authorities in the West Midland have a lot to thank those running the fund. All over Britain pension funds are waking up to the fact that they can not only know how much they’re paying for costs and charges and (where they find they are overpaying) save their fund and its sponsors money.

This seemed pretty real to me,

Making money real for ordinary savers

The work done by Chris Sier is interesting to Jeff and to those running the big DB pensions that many of us are fortunate enough to still be in.

But it doesn’t really do it for the man or woman on the street (even Chris admitted he was bored by looking at the IDWG template).

What really matters to ordinary people , as has been confirmed by many surveys, is how much money they have to spend when they reach later years. This means comparing more than the minutiae but the total impact of what people pay and what they get for their money.

The only way we can compare what we’ve had as value and paid as money is against what others are getting and paying. This is called by the industry  “benchmarking”.

We do this all the time, look at the way we shop in supermarkets, or compare costs on Money Supermarket, or consider the value of a Christmas Tree on a market stall. We need a reference point before making a buying decision.

A chap came on Moneybox who had been trying to work out the costs of his Scottish Amicable Policy but said he’d got nowhere. Michelle Cracknell rightly pointed out that if you’ve got an old policy – review it.

But Chris Sier explained that trying to work out the internal rate of return on his pension was really hard and even when he’d worked out what he’d got from his money, he had no comparator with someone else’s return.

It was again left to Jeff Houston to tell us that by publishing the costs of actual charges of each of the funds run by members of the LGPS, he was giving his members the way to compare the value they are getting for their money.

Until we can compare how we are doing with other savers using a single means of comparison, ordinary savers who take their own risks, will be at a disadvantage.

This seems pants to me!

pants 2

It can be done

Let’s go back to the idea of Chris Sier’s that we measure our pensions by how our contributions have done (using the internal rate of return of our contributions).

What if every IGC and every Trustee and every SIPP provider and every Insurer with a load of legacy pensions agreed to publish an internal rate of return on your pension pot, based on the contributions, the growth and the amounts deducted from your pension?

What if, instead of this being an abstract number – it was presented to you against the internal rate of return against a fund invested in an average way – an average asset allocation, average fund management – average costs?

Suppose that instead of presenting you with a 14 page spreadsheet or even a 14 page pension illustration, this information was presented to you on your phone as a single number between 1 and 100 with the average set at 50 and your score being above or below that?

Doesn’t that sound the kind of thing that we should be trying to do? Does that sound pants?

age wage simple


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in auto-enrolment, corporate governance, pensions, pot and tagged , , , , , , . Bookmark the permalink.

4 Responses to The hidden costs of charges are pants!

  1. Phil Castle says:

    Some WRAPs can show IRR and have done for sometime. Clients who have our most common WRAP (Transact), we show it to them in our printed report and explain it to those interested choosing relevant benckmarks to their individual needs.
    It’s not difficult and with clients it is not contentious. With older plans, with dinoseur providers, it is practically impossible.

  2. henry tapper says:

    Phil , this is a great point and an illustration of the problem. the 6% of people who get proper information through advisers and the platforms they use, are outnumbered by the 94% who don’t. We reckon there are 65m DC pots in Britain and only a few of them are giving their owners proper insights into how they are doing. Join me in campaigning for better for the many!

  3. Calum MacKinnon says:

    I am working for a firm of accountants and noticed that they are processing the pensioners payments each month. However they are not collecting company nic as they are all set as x. They are arguing that this is right but I think it should be c rate. Is there a way of finding out which one is right.

    • henry tapper says:

      When you are receiving a pension – you do not have to pay NI on that income. You are right to ask the question but you do not need to be concerned Calum

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