Closing Bell: Performance trumps charges - and you only get back what you put in

This week I have had to face up to the unpalatable idea that the Bs in BBC stand for Blinkered and Biased, and that Panorama does not report, as its name suggests, with a wide-angle lens.

This week it claimed to peel the lid off the scandal of overcharging on pensions. Instead it presented a one-sided view of a topic so important that it demands to be covered in the round. The only scandal uncovered by the programme was the weighted stance it took on charges and the dearth of information it provided about pensions and their intrinsic value as a savings vehicle.

By purely shining a light on instances of excessive charging, while leaving virtually every other aspect of pensions in the dark, Panorama failed to tell the whole story. In fact it did not even manage to tell the most important part of the story.

Of course it is wrong that certain pension providers and financial advisers charge more than they should for their services. But by only discussing some of the issues around charges, Panorama spectacularly failed to illuminate the benefits that pension savers enjoy.

In doing so the programme is likely to have put some people off saving into a pension altogether, seriously damaging their ability to save effectively for retirement.

For a lower rate taxpayer, saving into a pension immediately gives them an uplift of 25 per cent on their investment. What other vehicle lets you pay in 80, but have your account credited with 100?

For higher rate taxpayers the uplift is even greater at 67 per cent. Equally the profits made in a pension are free from capital gains tax and manage to mostly avoid income tax. Is it really a bad deal?

The programme highlighted the case of a woman who had been saving 25 a month and was distraught to find out she was not heading towards a lucrative retirement. This has nothing to do with the charges she was paying, as the programme made out. Instead it has everything to do with the fact that she was not investing enough and that the returns she was making on her investments were pitiful.

This is where the real story lies with pensions and it is one that was being told back in the 1980s. At that time the English Institute of Actuaries published a report into investment charges and performance and declared that performance was ten times more important than charges.

Yes, overcharging is wrong. Yes, pension savers need to seek out good value. Yes, this will improve the value of their pension. But if people are paying too little into their pension and are not making their money work for them, this will have a much more debilitating effect on their final retirement income.

Not every pension provider or financial adviser charges pension savers for switching between funds and investors should not be left stranded in investments that return buttons on their hard earned capital. There are plenty of funds that have a track record over more than 20 years of delivering an average annual return, after charges, well in excess of 10 per cent. Pension savers should avoid paying any more than they have to for investing in these funds, but invest in them they must.

The real problem is that many people do not appreciate how much they need to save to fund their retirement, or how to access the funds that will deliver the best results over the long term. If only Panorama had given us the whole story it might have been worth watching.

lAlan Steel is chairman of Alan Steel Asset Management in Linlithgow