The Association of British Insurers has rubbished Ed Miliband’s attack on pensions charges, accusing the Labour leader of scaremongering.
According to reports, Miliband told a press lunch in Westminster yesterday that he is determined to tackle the “massive, massive issue” of pension charges. He suggested parts of the industry were charging between 4 or 5 per cent, resulting in people losing half their investment.
He said: “I am very worried about the scale of administration charges that people face. What you find in some parts of the industry – not all parts, clearly – is that people are facing not 0.5 per cent, which is the benchmark administration fee that we put forward in the government scheme when we were in government, but 4 per cent or 5 per cent.”
“We have got to drive down these administration charges and we can’t allow people to be ripped off in the way some people are.”
The ABI says Miliband is “absolutely wrong” to imply 4 or 5 per cent charges on pensions are normal.
ABI director general Otto Thoresen says: “In newly set up automatic enrolment schemes the average annual management charge of our members is 0.52 per cent. The average annual management charge for existing schemes is 0.77 per cent. For many other existing schemes, both large and small, charges can be lower than 0.3 per cent. Nobody in the pension industry would defend a charge of 5 per cent for a standard new pension and we would ask Ed Miliband to write to us with details of the schemes he is referring to.
“Scaremongering about charges runs the risk of putting off many people from saving into a pension, which is critical for their financial future.”
The Labour leader cited research by the House of Commons library which showed that a monthly contribution of £50 over 40 years with a 0.5 per cent annual fee would lead to a pension of £32,398. But the pension would halve in value to £15,964 if a higher annual fee of 4 per cent is levied.
He said he was considering a cap on charges citing Nest’s 0.3 per cent annual charge. However, Nest also has a 1.8 per cent contribution charge on new funds that will remain until the Government loan used to set up the scheme is paid back.
Miliband’s comments develop his theme of “predatory capitalism”, first aired in his conference speech in September.
Macbeth Currie senior consultant Duncan Philp says: “The only way I could see a charge at around 5 per cent is on a top end Sipp and that is because they are more complicated, so that is a reasonable charge for schemes that need more work. For run of the mill schemes charges are far lower than that. The typical charge I see is around 0.9 and that includes paying the adviser. Miliband’s comments are ridiculous, he is just trying to scare the public.”