March 28, 2013 6:36 pm

Consultants’ fees slash workplace pensions

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments
Ross Altmann

Workplace pension savers could see up to 50 per cent of their retirement pots used to pay for pension advice given to an em-ployer, says a new report.

As millions of workers are automatically enrolled into workplace pensions, a probe by Which?, the consumer group, has exposed the size of “consultancy charges” that are being passed to pension savers without their knowledge.

When getting advice about how to set up a workplace pension, an employer can pay upfront or by “consultancy charging”, where the cost is passed on to members through deductions from their pension pots. Employees do not have a say in these costs, which are agreed between the consultant and the employer.

The market investigation of consultancy charges by Which? found fees of £400 per scheme member, spread over the first year, and ongoing annual charges of £5, were recommended.

Under this fee structure, a saver contributing £100 a month would see their first year’s savings reduced to just £795. Fees rising to £450, plus 7.5 per cent of all contributions for the first five years, were also discussed. The scenario would leave the saver with just £660 in the first year.

Which? said the combination of consultancy charges, plus fees of the investments into which savings are placed, can have a dramatic effect on a pension fund.

“Under the most expensive fee structure, someone earning £12,000 a year and making monthly contributions of around £82 over five years (with their investments growing at an annual rate of 5 per cent) would see the impact of charges cause their pension fund to be worth 7.5 per cent less than the total amount paid in,” found Which? in its report.

“It appears that there’s not much savers can do about this – charges are set between an employer and a consultant, with insurance companies simply agreeing to the fees.”

Campaigners say consultancy charging is a scandal waiting to happen and the regulator needs to intervene to protect workplace savers.

“There are hardly any controls on the amounts that can be deducted, workers will usually be completely unaware of what is happening and will trust their employer to choose them a good scheme,” says Ros Altmann, an independent pensions expert.

“These schemes are supposed to be ‘low cost’ and ensure workers get more income in later life. If so much of their hard-earned money can merely be taken out of their funds to pay unqualified and unregulated consultants, who do not even give them advice, then something has seriously gone wrong with the system.”

Related Topics

Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments
SHARE THIS QUOTE