A third of your pension pot 'at risk over hidden costs'
Published 16/10/2011 | 05:00
THERE is a lack of transparency in the level of costs in pension schemes in Ireland which can eat up to a third of the retirement fund over its lifetime, a pensions expert has warned.
Bridget McNally, a specialist in pension schemes at Maynooth NUI, who has spent years trying to uncover the truth about pension charges, said while in any one year the level of costs may not be significant, when looked at over the lifetime of the scheme it can be very different.
"So if you take fees of 2.2 per cent, the impact on that type of fund over a 20-year period is up to a third of the gross fund" could be eaten, she tells the Pension Shock documentary with George Lee on RTE One tomorrow night.
Her warning comes as the Minister for Social Protection Joan Burton said her department is undertaking a study with the Pensions Board and the Central Bank on the level of pension charges and expenses associated with different forms of private pension arrangements.
Minister Burton said: "The Government decided to instigate this study because of concerns that pension schemes and their members have in relation to the level of charges applied to their scheme and the lack of transparency around some of these charges."
The study will look at funded defined benefit pensions, defined contributions, retirement annuity contracts and personnel retirement savings accounts.
She said the focus will be on those charges or expenses that have the effect of reducing members' or employers' contributions or investment returns. PwC is to carry it out.
Her intervention comes as Pension Shock warns of the equivalent of another banking crisis unfolding over a longer period with an aging population and not enough money to pay for our retirements.
Pensions expert Ms McNally, who has spent hundreds of hours poring over the financial statements of defined benefit pension schemes, concluded that there is a lack of transparency in the level of costs and structures in pension schemes.
The programme says the Irish pensions industry could be swallowing up well over €1bn a year in fees and charges.
Former chief economist with Friends First and Bank of Ireland, Jim Power, who has spent a year trying to set up his own pension, said his overriding impression of the pensions industry was that it's very complicated and the legislation around it is very difficult to understand.
"The players in the industry have a vested interest to keep it as complicated and convoluted as possible because that's how they earn their exorbitant fees."
He wouldn't have a problem with that sort of fee structure if the industry was actually delivering.
Ms Burton said pension charges in Ireland are not predictable, they are not transparent and there is every possibility of being ripped off.
Mike Kemp of the Irish Insurance Federation said it was not something that the industry would have a problem with if there was a requirement to put more information out about the schemes, although there was a danger of information overload.
In an in-depth look at the pensions crisis, the programme says we are facing a bill of €116bn to pay our public sector pensions alone, while over half of privately funded pension schemes are technically insolvent, and the pensions industry has invested too heavily in the riskiest of assets -- shares.
It says many people are seriously underestimating the amount they'll need to fund a decent retirement. Actuary John O'Connell says if a man wanted to retire at 65 with an income of €400 a week he would need a pension pot of €480,000.
The programme says whatever pension you want you need to save 24 times that amount -- with women needing to save more because they live longer.