Report on pension charges throws light on expensive, opaque business

Minister for Finance Michael Noonan has stated that tax relief on pension contributions, already diminished in recent budgets, is again up for review. The industry, still rankling at the minister’s raid on pensions with his 0.6 per cent annual levy on funds until at least 2016, is raising a storm at this renewed attack on retirement savings, with headlines warning of a cost to individual taxpayers of about €800.

What better time to turn the spotlight on the industry and the money it makes from pension scheme members – and the magnified impact that has on people’s retirement income.

It would be comforting to think Noonan was making decisions in the context of a broader policy framework. The piecemeal dipping into the pension pot in recent years suggests otherwise.

It is to be hoped the upcoming report from the OECD, commissioned by Minister for Social Protection Joan Burton, will provide some policy direction for the Government, and longer-term stability for pension scheme members.

Meanwhile, the industry has more explaining to do. One of the more surprising findings of the report is that as many as 80 per cent of pension funds have been “rebrokered” in the past five years. While some scheme review and amendment is always likely, the scale of it recalls the churning that tarnished the financial services sector previously. The Central Bank, one of the groups behind the study on charges, has undertaken to review this particular issue.

* Report on Pension Charges in Ireland 2012, iti.ms/UxITVu

PENSION CHARGES HOW THEY ADD UP

Charges occur at various stages of the process – when an individual sets up a pension plan, as he or she contributes to it, and when a member exits a scheme. Some are disclosed, but others are not.

Disclosed charges:

annual management charge contribution charge – an umbrella term covering the percentage of each monthly contribution that actually goes to purchase investments net of fees, and the bid/offer spread which reflects the gap between the price at which units in an investment fund can be bought and sold on any given day policy fees – a monthly or annual fee to cover administration charges exit penalties – for leaving a policy early commission – to broker who arranges your mortgage.

Undisclosed charges include:

brokerage commission custodianship and trusteeship costs audit costs fund accounting costs stamp duty and other taxes.