When I saw that headline, I assumed it would be the tired old wailing about "Gordon Brown's raid on pensions", but was pleased to see that they have done a little bit of digging and are talking about something far more fundamental:
Greedy investment fund managers are snatching up to 95 per cent of your profits as part of a £10 billion-a-year raid on your investments...
In this special investigation, we focus on investment funds such as unit trusts which hold £324 billion of your money...
- Some firms such as Axa and Henderson are alleged to have taken more than 90 per cent of their investors' profits over the past ten years.
- More than 40 per cent of profits on the average share-based investment fund are swallowed up in charges.
- Investors and pension savers in some funds are seeing up to 80 per cent of their pot swallowed in charges by the time they retire.
- Investors are frequently misled about the true effect of charges on their savings.
These charges are even higher with pension funds, who of course invest a lot of money into unit trusts and other 'managed funds', because there are many more layers of regulation. There's three times as much money in pension funds as in unit trusts, so if we times £10 billion by three and add a bit more for luck, we arrive at the conclusion that the entire value of tax breaks for pensions savings (about £38 billion) is swallowed up with fees and charges.
Or to put it another way, the net cash (after tax relief) that people put into pension funds is roughly equal to the money that is paid out in pensions (after tax is deducted).*
* More detail on this in my earlier post and comments thereto.
Huw Edwards, a lucky man in many respects
2 hours ago
10 comments:
And this is new news?
You can 'make more money for' (as in preserve the value of) a client's money better by reducing the costs as opposed to trying chase performance
Screwed either way.
L, no it's not 'new news'. But it's nice to see a mainstream newspaper actually put numbers on things that I (because it is my job - client confidentiality etc) happen to know for a fact. And ties in with my rant about tax breaks for pensions being creamed off in their entirety by the 'pensions industry'.
JH, no you're not. Just save in cash or buy shares directly.
Probably a little unfair right now given the stock market slumps after the credit crunch.
Obviously true in general though. Rather misses the point, however: pooling your investment actually does make sense even if it costs you something, because you reduce the risk attached to buying a single share.
AC, portfolio theory (and maths and real life) tells us that you can eliminate most of that risk by throwing darts in the prices pages of the FT and buying the first twenty shares you hit and just holding on to them for a long, long time (to reduce transaction costs)
Such a portfoliio would track the FTSE (or whatever) to within a few per cent either way every year. It's not like the directors of quoted companies aren't already taking the piss, you really don't want yet more layers of piss artists in between.
Since you're suggesting going really long term here, would it make sense to go for preferred shares instead of ordinary shares and get the extra income? Or are there other disadvantages that would make them a bad deal?
D, I don't do specific investment advice, but the main thing is, if you are going to buy shares (deferred or ordinary), buy them directly in your own name and not via a managed investment fund or pension fund.
D, MW etc.
It is possible to by pooled passive funds at a very low price indeed. Blowing my own trumpet, we use funds with nil initial costs - you get in at the creation price, and with TER's down at 0.45 and get lower. I reckon to cut that by a further 0.3 this next 12 months. These funds track specific asset classes - smaller companies, short term bonds, 'value' stocks for example - and using these building blocks you can create very useful portfolios.
But MW is absolutely right. Pension fund managers (and cash ISA managers) just take all the tax relief for themselves. It's been doing my head in for years too.
BTW, we have been doing pensions for less than Stakeholder charges (which are a price control - and we all know that price controls never work) for ages.
Whilst it's nice see a newspaper making this point the article won't be complete and it won't be followed up. It will be superficial and sensationalist and ultimately will not help.
PS. I had to go to an FSA meeting yesterday to be quizzed on their latest initiative 'treating customers fairly'. As expected it was utter bollocks. If I can stop being furiuous for a moment I might share it with you.
"PS. I had to go to an FSA meeting yesterday to be quizzed on their latest initiative 'treating customers fairly'. As expected it was utter bollocks. If I can stop being furiuous for a moment I might share it with you."
What business do the FSA have pushing their "latest initiative" when their getting canned?
SW Quite. Can someone explain that to me, please?
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