Labour slams pension fees 'rip-off'
Thursday 12 July 2012
Labour is planning to turn its fire on pension companies which rip off their customers with excessive fees and charges, party leader Ed Miliband said today.
Mr Miliband described overcharging on pensions as "the next chapter" in the scandals which have emerged in the financial services sector, and said he was "determined" to protect people who are seeing as much as half of their pension savings eaten up by fees.
No firm decisions have yet been taken on Labour's policy for curbing excesses, said Mr Miliband. But he floated the idea of a cap on charges, which could be linked to the 0.5% benchmark for fees set out by the former Labour government.
And he said that he wants pension companies to be much more open with potential customers about how much they will charge and how that will affect their eventual income in retirement.
At present, some people are paying up to 4% or 5% in fees and charges on their pension schemes, which could swallow up as much as £50,000 of every £100,000 they pay in over the course of their working life, he said.
Mr Miliband told a Westminster lunch: "I think there are real issues in the pension industry, because in parts of the industry people can see half the money they have paid in being taken in fees and charges and all of that.
"We are determined to tackle this as the next stage of what we do, because I think it is a massive, massive issue coming down the track.
"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%, which is the benchmark administration fee that we put forward in the government scheme when we were in government, but 4% or 5%.
"Four or five per cent might not sound enormous, but it could mean up to half of people's investment is wiped out and we have got to do something about that.
"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."
Mr Miliband compared his planned assault on bad practices in pensions to his criticisms of abuses by powerful forces in the media and the banks.
"The test for politics now is can you take on any interest, however powerful, if it is in the people's interest?" he said.
"There can't be any interest where you have to say 'They are too powerful, we can't protect you against them', whether it's energy companies or banks or right across the board. If you do that, people will say you are not equal to the task."
Sketching out his response to the pensions issue, Mr Miliband said: "You have got to have a benchmark for a low-cost option, and we have put in a 0.5% charge option, which we did in government.
"You have got to have much greater transparency, because often - and this is similar to the banks issue - people don't know the charges they are going to face. People aren't told 'You will put in £100,000 and £40,000, £45,000 or £50,000 is going to be eaten up in pension charges'. They don't know that at the beginning.
"You have got to look at all the issues about how can we cap costs. That's an option, that's something to be looked at.
"We haven't made a final decision on that, but we have got to look at the ways in which this can be dealt with, because otherwise lots of people are going to say to us when they retire: 'I had no idea what was coming my way and what was coming down the track.'
"We have got to change the financial services system so it works for people. There are lots of pension firms that do a good job and tell their customers what the situation will be and do tell them what is going to happen, but there is a lot more that needs to be done in other parts of the industry."
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