Pensioners hit with 'rip off fees' every year as some face huge charges

UK pensioners are being hit with an extra £1.5 billion a year in excessive fees by pension fund managers, according to fresh analysis. The charges levied by these pension fund managers for selecting and managing investments can fluctuate wildly without any valid reason.

Research carried out by data analytics firm ClearGlass revealed that some pension fund schemes are paying up to 14 times more for the identical investment product compared to others. Chris Sier, the CEO of ClearGlass, expressed his concern to the Financial Times, stating: "Some clients are being treated bloody unfairly.

"Asset managers seem to price within an extreme range and offer different clients vastly different prices for the exactly the same thing. The outcome is some clients are effectively subsidising the prices offered to others."

The fees paid by pension funds are significant as they can drastically reduce the final payouts to savers upon retirement, leaving them financially worse off in their later years. The study examined the actual prices paid by 688 private and local government pension funds representing £550 billion in assets, or about half the market, across 629 managers and 38,000 fund strategies.

Mr Sier, who was appointed by the FCA in 2017 to chair a working group on disclosure of costs and charges for institutional investors, estimates schemes could be £700 million a year better off if they all secured the best deals, rising to £1.5 billion if the findings were scaled up to cover all 5,000 direct benefit pension schemes.

The new analysis has uncovered that pensioners are often in the dark about the exact fees they're forking out to fund managers, potentially leading to paying over the odds for financial products. In a striking example from the findings, one pension fund was discovered to be shelling out six times more for a fund tracking a fixed-income government bond index than what would be the cheapest price available on the market.

Another case highlighted a pension fund that was coughing up seven times the amount for a listed passive UK equity fund compared to the most competitive deal out there. An unnamed asset manager was also called out in the research, with revelations that some of its pension clients were being charged triple the rate for a listed passive UK equity fund than what was offered in the manager's lowest-priced deal.

Moreover, the investigation found a pension fund that was paying a staggering 14 times above the market's bottom price for a fixed-income absolute return fund. Mick McAteer, ex-board member of the Financial Conduct Authority and now co-director of the Financial Inclusion Centre, expressed his concern over the findings. He commented that the analysis showed some pension funds were getting "ripped off".

He added that pension scheme trustees had a legal obligation to "I would hope (this analysis) would serve as a wake-up call for trustees . . . We know high charges will have a detrimental impact. Secondly, let's hope it helps speed up the much needed regulation of investment consultants."

The Investment Association, a representative body for fund managers, has described its members as operating in a "highly competitive" market, where stringent regulation ensures transparency of fees and underlying costs. In a statement, Chief Executive Chris Cummings said: "The industry has supported a range of initiatives over the last decade to enhance cost disclosure and these have led to the UK being one of the lowest cost countries in the world to invest."

Cummings went on to add that trustees of pension schemes are legally obliged to "seek out and follow the advice of these professional advisers who drive hard negotiations with managers on fees on their clients' behalf".