Tuesday 12 December 2017

Thousands losing up to 40pc of their pension pots with charges

Charlie Weston, Personal Finance Editor

THOUSANDS of pension savers are being hit by charges which eat up as much as 40pc of the value of their retirement pot.

This means a typical pension saver can incur costs of €100,000 over the lifetime of their pension, a study commissioned by the Irish Independent shows. Even on a relatively-modest retirement fund of €250,000, fees and charges can erode more than a third of the pensions pot.

The revelation of the sky-high charges come as plunging stock markets have seen the value of the average managed fund fall by about 10pc since the start of July, according to Mercer.

Now a probe into pension charges has found that huge charges are eating up the value of many private sector retirement savings, prompting pensions expert Fionan O'Sullivan of IFG Corporate pensions to accuse the industry of overcharging consumers.

"The majority of Irish investment managers have for years being charging active investment rates for what appears to be in many cases, passive investment activity and it's difficult to believe that many clients are not being overcharged.


"The impact of fees on pension funds can be a lot more significant than people think," Mr O'Sullivan said.

Annual management changes, which are imposed on the value of the fund that has been built up, can have a huge impact on the amount someone with a private pension has in retirement.

Mr O'Sullivan looked at someone who retires with a fund of €250,000, which would give an annual pension of €12,500.

If an annual fee of 1.5pc was imposed on the value of the fund it would cost the pensions saver €313 a month or €3,750 in fees.

But getting the annual management fee down to 0.5pc would mean a saving of €208 a month, or €2,500 a year.

This means that over a 40-year period someone who is paying the top fee of 1.5pc on the pension fund ends up losing €100,000 to fees. This reduces the final value of the pension pot by 40pc.

Last month the Government put out a tender for consultants to carry out a report into pension fund charges imposed by Irish fund managers. It is expected the report will be available by the end of the year.

The move follows strong criticism after the imposition of pensions levy to be imposed on private sector pensions funds, and the additional voluntary contributions being made by public servants.

Irish Independent

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