Labour To Introduce New Legislation To Make Pension Fees More Transparent
- Independent analysis conducted on scale of pension fees in Ireland, and lack of transparency.
- Report shows losses of hundreds of thousands of euro per person due to pension fees.
- Labour to introduce legislation to dramatically increase pensions fee transparency to assist consumers.
The Labour Party is to introduce legislation to make fees for the management of private pensions more transparent.
Speaking in response to the publication of an independent analysis forwarded to the party on the impact of pensions fees on personal pension pots, Labour finance spokesman Ged 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. The findings of this report are consistent with research from the OECD which states that every 0.25% in pension fees leads to a 4% to 5% decrease in a person’s pension pot at retirement. With so little transparency on pension fees in Ireland, it is difficult to say with certainty what the average fees are here, but a 2012 government report found the average was at least 2.18%. That means on average 35-45% of peoples’ private pensions are going up in smoke due to these pension fees. We’re talking about hundreds of thousands of euro per person over the lifetime of the investment.
“This report shows how ordinary people are paying extraordinary sums of money from the pension pot they’ve worked hard to fill over time. When a young person starting out in their career signs up to a pension provider, fees of 2% or 3% 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. The case study in the report shows the difference between somebody paying 3% in fees, and 1% in fees, can be hundreds of thousands of euro.
“What this also means is that the pensions industry is actually eating up a huge chunk of the tax relief available for pension contributions in fees. The State is effectively subsidising the pensions industry to a huge degree.
“Another issue that the report lays out is the lack of access in Ireland to low-cost passively managed pension funds, which charge a fraction of the amount of higher cost funds. These funds are widely available in the UK and the US, but are not widely available in Ireland. Several public sector unions in the US, including in California and Illinois, have moved their members’ pension investments to low cost funds due to the savings available to them.
“The pensions industry has questions to answer here, as does the Government, and the Pensions Authority, but the first thing that needs to happen is that the pensions industry in Ireland needs to become transparent, and be legally obliged to give much better information to its customers on the impact which fees and charges are having on their pension investment.
“This has been a long running issue and on foot of the analysis we have seen and our own research, Labour will be introducing legislation to dramatically increase the transparency of pensions fees. We will force the pensions companies to provide annual statements to pensions holders on the effect which the pension fees will have on their pension pots at retirement, which in many cases will be to reduce them by hundreds of thousands of euro. As a first step we need to empower people to properly weigh up the benefits and costs of their financial decisions and to ensure that they have clear information to inform those decisions.
“We will consider introducing further measures to reduce charges in time, but the very first step that needs to be taken is that the pensions industry needs to come clean with its customers about how much their fees are costing them. I will also be writing to the Pensions Authority and to the Minister for Social Protection in relation to this ongoing rip-off. The enormous sums of money involved here mean that this issue needs urgent attention.”