Conservative peer Lord John Patten has attacked the “tyranny of hidden charges” which he says erode the value of peoples’ pension savings.
The Government has come under growing pressure from politicians, trade unions and industry experts to tackle the issue of high pension charges following the introduction of automatic enrolment.
Last week, the pensions industry produced a code of conduct designed to improve the disclosure of charges to employers.
The Association of British Insurers has also written to The Pensions Regulator and the FSA outlining a four-point plan to make pension charges more transparent, including the disclosure of all transaction costs.
Speaking during a House of Lords debate on small pension funds, Lord Patten said: “The trouble is that you go to a fund which promises [returns of] 3.5 per cent and very often that fund…then itself invests in other funds investing in funds of funds, and each of those has their layer of charges.
“Before you know where you are, a combination of slowly growing inflation and a multiplicity of charges has abolished any possibility of real growth in that pensioner’s income.
“People often talk about the magic of compound interest but the tyranny of hidden charges directly on pension funds is very destructive of wealth.”