Are these funds fit for purpose? | Money | The Guardian .
Fifteen years ago Guardian Money reader Michael Rundell started saving in a pension scheme with Scottish Life. In September 1994, the FTSE 100 was just above 3000. He paid into the plan every month, investing £70,000 in total. This month, with the FTSE above 5000, he asked Scottish Life for the value of his fund. He was stunned by the reply. Despite the share index rising some 60% over the period, Scottish Life had turned the £70,000 into ... just under £70,000.
"What a splendid wheeze this pension business is," says Rundell. "There was me thinking the fund was a mechanism for maximising my retirement income, when it's really a job-creation scheme for people who — judging by their performance as fund managers — would be otherwise unemployable. Would someone explain how it can be legal for these people to make a good living out of my savings while doing absolutely nothing for me?"
This is the reality of our financial services sector: those bonuses and large salaries are all stolen from out future incomes to fund the current excessive lifestyles of a tiny minority today.
The sooner we wake up to this reality and reform pensions and the whole financial services sector the better.
Promoting People's Pensions would be a start.
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Richard,
I totally agree on this. Pensions charges are be a national scandal. The same for so-called “with-profits” funds. And I would also ban the practice of giving investment managers a commission for selling any product. How that can ever be in the customer’s interest is beyond me.
It’s a sad and all-too-prevalent tale.
In general, the more actively managed the pension fund someone pays into, the bigger the management fees and hence the bigger hit his or her pension pot takes. This poor guy in the Guardian was probably paying into an actively managed fund over 15 years – and then found that his entire return had been creamed off as fees.
There’s no evidence that actively managed funds perform better than selecting the cheapest tracker fund you can find and then paying into that. That minimises the negative hit from fees.
Having said that, stock markets can still be very volatile over long timescales as well as short. It’s something of an intergenerational casino. The losses in the US stock market in the 1929-32 period weren’t recovered until about 1960. That’s 30 years – most of a typical person’s working life.
I like your People’s Pension idea. If New Labour had gone for that in 1997 rather than embracing PFI we’d probably be in a much better position. Hopefully the next Labour leadership will give some serious consideration to your proposals!
But on the other side of the coin, the insurance brokers can buy a new Mercedes every two years and bi-annual ski trips to Crans Mantana. 😯
Entirely agree. I am involved with Life Academy, part of Surrey Univ. and we do courses for life planning, retirement etc. including finance.
There are oh so, so many impoverished people on our courses who have been fleeced by these unethical and basically unregulated finance houses. What other industry is given huge Govt. subsidy (pension tax relief)and then after trousering that, they then fleece the poor punters money;Pure Greed. I regret that Nu Lab have been complicit in the plundering of ordinary people’s money by the City. Unfortunately the other main parties are on the same trip. I will vote green, at least they have some morality.
It is bad, but at least he is getting his money back, what will the under 50’s get from all their NI contributions to their national pensions.
Nada, as it’s been stripped by “progressive governments”