For all that the pensions industry has sought to demystify pensions and make entry more accessible, disincentives to invest are formidable. Returns on traditional government stocks and fixed interest bonds have fallen to derisory levels. The stock market has experienced three savage downturns in the past 15 years, making for more volatile investment returns. Add to this the mis-selling scandals elsewhere in the financial services industry and it is not hard to see why consumers are disinclined to take the assertions of pension providers on trust.
Now on top of this are continuing concerns about high fees and charges that can make a very significant dent in returns to pension savers.
This is the background to the long-awaited OFT report into the £275 billion defined contribution market where both the employee and the employer pay contributions each month to be invested in shares or bonds. It has expressed concern that some £40bn is trapped in pensions that are suffering high charges and providing poor outcomes.
This is a critical issue for five million retirement savers in defined contribution schemes as the size of the final pension pot depends on what is contributed, plus any investment growth, minus charges.
An annual management charge of 0.5 per cent may seem insignificant. But it could reduce the returns on a pension pot by 11 per cent over its lifetime, while an annual charge of 1 per cent would see a 26 per cent reduction. And there are other charges such as initial, monthly and adviser charges to factor in.
One reason why the OFT held back from imposing a cap is that there are no less than 18 different configurations for charges and it feared a cap would encourage providers to raise prices elsewhere or cut benefits such as retirement annuities.
However, it has recommended a ban on “active member discounts” given to those members of workplace schemes who are still contributing. When a person leaves they lose their discount and the annual charge goes up. The OFT has ruled that no-one entering a scheme under auto-enrolment should suffer such a discount withdrawal.
The recommendations go some way to tackling excessive charges – but not far enough. Given the public concern over long-term savings products, it is surely in the industry’s interest that it moves quickly, both to greater transparency in its charges and fees, and to more competitive pension provision. The need for this is all the more compelling given the onset of auto enrolment under which employees on starting work are automatically made contributing members.
Andy Murray shows his spine
For the past two years sports lovers in Scotland and across the UK have revelled in the magnificent achievements of Andy Murray. Most were aware of ill-defined though seemingly mild problems with a back injury. Now we know that the problem has been more serious and more demanding of his tenacity and will than most realised. As a result he will undergo surgery next week to address the condition. It means that he will not play again this year. But with only seven weeks of the season left to run, it is surely more important that he takes time out now and be given the best medical attention to ensure he is back fighting fit next year.
It is easy to overlook the enormous stresses and strains faced by world-class athletes today. The bar of success continually rises with improvements in fitness, muscle power and skill. All this exacts a toll on those competing at such a high level and with such intensity. Their bodies are increasingly tested to achieve the results that they do.
Andy Murray has had to contend with back issues for the past two years. They flared up in 2011 and again during the Rome
Masters this year when he was forced to retire. Painkilling injections in his lower back were required to see him through the French Open, Wimbledon and the Olympics. Immediate symptoms included shooting pains in his left leg, similar to sciatica. After a return to playing on more demanding hard-courts and clay, further advice was sought.
His achievements throughout this are all the more formidable: two grand slam titles and an Olympic gold medal. We wish him well in his treatment and for a return to glorious form in the year ahead.