Six in every ten euro in a pension pot being consumed by charges

Report finds charges are wiping out tax relief given to pension savers

High charges see pension firms scooping up thousands of euro in fees from pension savers' funds. Photo: Stock.

High charges see pension firms scooping up thousands of euro in fees from pension savers' funds. Photo: Stock.

Ged Nash

High charges see pension firms scooping up thousands of euro in fees from pension savers' funds. Photo: Stock.

Charlie Weston Twitter Email

April 19 2021 02:30 AM

Thousands of euros of pension savings are being consumed by high charges.

A report has found that up to €6 out of every €10 of the final pension pot is being eaten up by fees paid to finance firms.

It found that fees and charges are so high that over time they are wiping out the tax relief given to pension savers by the State. And most people do not understand just how much is being siphoned from their retirement funds by charges.

The findings have prompted the Labour Party to draw up legislation that would force pension providers to be more transparent about charges.

Independent research forwarded to Labour’s finance spokesperson Ged Nash found the typical fees in Ireland are extremely high.

Its findings are broadly in line with a 2012 report on pension charges compiled by the Department of Social Protection, assisted by the Pensions Board, the Central Bank and PwC, which found that average fees were at least 2.18pc.

The 86-page report found that on average almost a third of the value of an individual’s retirement savings can be consumed by charges.

The independent pensions report calculates that the impact amounts to losses of up to 60pc of the value of the pot by retirement age. This is based on pension firms charging as much as 3pc a year on the value of the entire pension pot. Typical fees here are higher than in other countries, and low-cost, passively managed pension products are not available in Ireland.

The high fees compound and over time and extract thousands of euro from the fund.

The impact of charging 3pc every year on the full amount can see pension firms scooping up thousands of euro in fees. The OECD indicates every 0.25pc increase in fees results in a 4pc to 5pc reduction in the value of the final fund.

The report says: “Therefore, annual fees of 3pc results in a reduction in value of the final pot of up to 60pc.”

The report author cannot be publicly identified as he works for a State agency, but the findings have been verified by this publication after it was shown to experts in the area.

Mr Nash said: “This independent research was provided to me and it raises major questions about the scale of pensions fees in Ireland, and it also raises major questions about the complete lack of transparency about those fees.”

He said it shows how people are paying extraordinary sums of money from the pension pot they have worked hard to fill over time.

“When a young person starting out in their career signs up to a pension provider, fees of 2pc or 3pc sounds small at the time, but what many don’t realise is that these fees are applied every year to the entire pension pot, which builds over time, and ends up being an eye watering sum of money.”

He said the pensions industry, the Government and the Pensions Authority have questions to answer.

Insurance Ireland, which was provided with a copy of the report, said it was ‘comprehensive’ and they would review it. “However, it is difficult to comment on a report without any attributed author and, at first sight, we would question some of the assumptions made in terms of pensions fees,” it added.

It said its experience is that fees are much lower and this would be confirmed by the Pensions Authority report, which recognises a much broader range of fees starting at around 0.09pc to 3pc.