• March 28, 2024
 High pension fees may shock many unaware clients

High pension fees may shock many unaware clients

Should consumers be more aware of the indirect costs of their pension plans? New research indicates this may be the case.

Many UK residents are unaware of the additional costs they may incur from their pension providers in terms of management and early-exit costs. Recent research has demonstrated potentially worrying numbers of people are unaware of the amounts they are paying towards management costs in particular.

The research conducted by YouGov polled 1,256 working adults aged 65 and under and found that just over half of the participants were unaware if there were management costs levied by their pension providers. The figures demonstrated that women were less likely than men to know the current status of fees due on their pension pots. However, the relatively small number of participants polled needs to be taken into account, as the figures are not representative of the population as a whole.

The research also indicated that only 11% of those polled were aware of how much they were being charged, with around double that figure conscious of the charge, but not the amount. The statistics, according to People’s Pension Director, Darren Philp, demonstrate a “worrying lack of awareness about pension scheme charges”. In his opinion, a positive change would see pension providers standardise their charges in order to curb the lack of awareness.

However, pension firms are not only under fire about the differing fees regarding pension management, but also the amount consumers are liable to pay in exit fees.

A survey conducted by the Financial Conduct Authority (FCA) of over 23 firms has revealed that almost half a million people would be subject to an exit fee upwards of £1,000 upon leaving their policy early (please note that these figures exclude conventional with-profit policies). Whilst 463,000 sounds like a large number, the polar end of the scale shows that approximately 17 million of those who may choose to leave policies early would incur no charge. This equates to 83.6% of customers over 55, and 89.6% under that age.

Although the FCA’s survey could be seen to show the majority of consumers are not subject to exit costs, it still calls into question how familiar consumers are with exiting-fees and other pension-related charges. Current research is showing an overall lack of awareness, which cannot be solely blamed upon the customer.

Arguably these findings demonstrate an industry-wide need for greater clarity regarding pension costs. And this issue is not isolated to the UK, indeed Guillaume Prache, Managing Director at Better Finance has noted the issue as one that affects many EU countries too. His view mirrors Philps’ in that greater transparency and standardisation is needed for consumer protection.

Do you agree that firms could do more to make sure those with pension plans are fully aware of all the costs involved? Let us know your thoughts in the comment section below.

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