Consultants’ fees slash workplace pensions

March 28, 2013 6:36 pm

Consultants’ fees slash workplace pensions

By Josephine Cumbo

Workplace pension savers could see up to 50 per cent of their retirement pots used to pay for pension advice given to an em-ployer, says a new report.

As millions of workers are automatically enrolled into workplace pensions, a probe by Which?, the consumer group, has exposed the size of “consultancy charges” that are being passed to pension savers without their knowledge.When getting advice about how to set up a workplace pension, an employer can pay upfront or by “consultancy charging”, where the cost is passed on to members through deductions from their pension pots. Employees do not have a say in these costs, which are agreed between the consultant and the employer.

The market investigation of consultancy charges by Which? found fees of £400 per scheme member, spread over the first year, and ongoing annual charges of £5, were recommended.

Under this fee structure, a saver contributing £100 a month would see their first year’s savings reduced to just £795. Fees rising to £450, plus 7.5 per cent of all contributions for the first five years, were also discussed. The scenario would leave the saver with just £660 in the first year.

Which? said the combination of consultancy charges, plus fees of the investments into which savings are placed, can have a dramatic effect on a pension fund.

“Under the most expensive fee structure, someone earning £12,000 a year and making monthly contributions of around £82 over five years (with their investments growing at an annual rate of 5 per cent) would see the impact of charges cause their pension fund to be worth 7.5 per cent less than the total amount paid in,” found Which? in its report.

“It appears that there’s not much savers can do about this – charges are set between an employer and a consultant, with insurance companies simply agreeing to the fees.”

Campaigners say consultancy charging is a scandal waiting to happen and the regulator needs to intervene to protect workplace savers.

“There are hardly any controls on the amounts that can be deducted, workers will usually be completely unaware of what is happening and will trust their employer to choose them a good scheme,” says Ros Altmann, an independent pensions expert.

“These schemes are supposed to be ‘low cost’ and ensure workers get more income in later life. If so much of their hard-earned money can merely be taken out of their funds to pay unqualified and unregulated consultants, who do not even give them advice, then something has seriously gone wrong with the system.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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