Labour’s unhelpful contribution to the debate on pension charges both exposed a worrying lack of subject knowledge and undermined the party’s dangerous “lowest cost at all cost” view of long-term saving.
Last week Ed Miliband declared war on pension charges telling reporters he planned to tackle the “massive, massive issue” and floating the idea of a charge cap. He warned some funds were charging 4 per cent to 5 per cent, compared to the 0.5 per cent equivalent (AMC plus introduction charge) of Nest.
As part of the attack journalists were briefed on the Neptune UK Mid Cap fund as a clear example of the type of behaviour Ed and his team were looking to stamp out. Except, of course, it was nothing of the sort.
The fact this is a tiny specialist investment fund, and not even a pension fund, makes it a very unfair comparison to Nest.
The £10m Neptune fund did indeed have a total investment cost at one stage of 3.96 per cent but this includes sizable dealing costs caused by a high portfolio turnover in volatile markets which helped it to return over 17 per cent over one year and 88 per cent over three years.
Investors in the fund are unlikely to have welcomed a call from Miliband to limit the amount of buying and selling the fund manager is able to conduct, and the knock on effect it would have on their savings. He also conveniently failed to mention a sizable chunk of these costs are paid to the exchequer in stamp duty.
This one example exposes a simplistic, dangerous and anti-consumer view that charges should be kept as low as possible, no matter what effect this has on the client’s retirement income.
The most important thing is performance net of all charges and the size of the subsequent pension. Of course, this relatively simple idea may be difficult to understand for those enjoying generous defined benefit schemes.
Labour’s subsequent policy document was a mixture of rehashed ideas, some of them admirable, and extra layers of bureaucracy likely to increase costs for consumers.
There are plenty of changes to industry behaviour that Labour could be pushing for to get a better deal for consumers. But parading dud research and encouraging scaremongering headlines that will turn more people away from saving is a hugely irresponsible approach to be taking.