4 November 2013

Hitting pension charges is not the whole story...

Political parties are currently out-doing each other with their rhetoric on pensions. Charges remain at the top of all parties' agendas, though, but are they missing the point?

There's no doubt that pension charges are important. Like any long term investment, the effect of charges is cumulative and has a huge impact on the end result, so they certainly can't be ignored. But whether it's the best thing for pension savers to have to be told the minutiae of the different charges (an Opposition aim for the Pensions Bill) is certainly debatable, while the charges on modern pension plans are not that horrendous anyway.

A much bigger impact on the end result, according to data from the Pensions Policy Institute, is the "triple lock" which no party has committed to in the next parliament. That's the guarantee to increase the State Pension every year by the higher of inflation / average earnings / a minimum of 2.5%.

By linking the State Pension only to average earnings, for example, you have to contribute much more each year than you would if charges were 1% higher (that's a lot  higher). The triple lock is something in the politicians' control, but they are not addressing it. It's easier to point the finger of blame at someone else I suppose - pension providers in this case.

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