07 December 2010
A recent report entitled, 'Tomorrow's Investor: Building the
consensus for a People's Pension in Britain', by the Royal Society
for the Encouragement of Arts, Manufacture and Commerce has
recommended that Britain's pension system is in need of urgent
change.
The study which was written by David Pitt Watson, a leading
pension fund manager and chairman of Hermes Focus Asset Management,
on behalf of the Royal Society for the Encouragement of Arts claims
that private pensions built up in Britain will pay an average 50%
less in retirement income compared to a Dutch pension Fund.
Mr Pitt-Watson's two-year study compares how British savers fair
with their overseas counterparts as a result of the fees charged by
pension funds.
While the annual management charge can appear small, its effect
after decades of saving is substantial, as the fee is calculated
annually as a percentage of the total pension fund.
An example given shows that a person saving £1,000 a year
throughout their working lives would retire on an
inflation-protected pension worth £16,080 a year if they did
not pay fees. However, the typical fees levied by British pension
funds would reduce the payout to £9,900 annually.
The report shows that Dutch and Danish systems have funds with
far lower costs, such as ATP in Denmark which charges about 0.04%
to manage its fund, or £5 per person annually.
The research claims that savers are often unaware of how much
pensions cost.
"When people hear that they are being charged 1 per cent or 3
per cent, they think they are being charged 3p in the pound or 1p
in the pound, and think 'that's fine'. But because of compounding,
the pension costs actually add up to 40 per cent," said Mr
Pitt-Watson.
To view a copy of the full report click here
