The FT ha an excellent article that anyone with an interest in pensions should read this morning. The argument is clear from the title, which is 'Fees are a scourge on pension funds'.
The article makes three things clear. The first is that fees in most pension funds are much higher than for direct investing, but the returns aren't necessarily any better.
The second is that getting data on this issue is nigh on impossible, but a new report is trying to put that right.
The third is that in the UK the average rate of return on pension fund investment between 2000 and 2013 was minus 0.7% despite the fact that these funds in the UK managed more money than UK GDP.
And there are no excuses for this rate of return: by no means all countries delivered such poor returns. Denmark managed 3.8% positive returns over the same period and we live in an era of globalised markets.
As the FT concludes from this dismal survey of UK pension performance:
This could all be summarised by that well-worn question: where are the customers' yachts? The trillions of dollars worldwide invested in pension plans will continue to grow as more contributions roll in, providing a reliable source of revenue for the pensions industry and all its hangers-on. The outcomes for savers are hard to discover and much less certain. Is this the right way round?
I can't argue with that, except to note that this dismally failing activity receives a subsidy of £50 billion a year from the UK taxpayer and still cannot produce a return. The article, as is commonplace, makes no reference to this fact, but it should.
The pension industry has failed the people of the UK.
It has failed to deliver the funds we need for new investment.
It has drained the UK government of funds.
But it has made a relative few in the City very rich indeed as they have captured the wealth of the majority for their own private gain - as the stats make very clear.
And it is now being used to promote inequality.
The time for major reform has arrived and the first question to ask is why the state is continuing to subsidise this so obviously failed industry?
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Obvious question: what are the Danes investing in?
(would like to think that renewable energy is a chunk of it – “grøn ny aftale”, anyone?)
We’d all like a slice
Of course, if we’d had a sovereign wealth fund to invest in we might have had it
As a member of the USS pension scheme that applies across the “old” universities I couldn’t agree more, Richard. Proposals have recently been announced by the scheme’s administrators to significantly worsen the terms and conditions of our pensions and the amounts people will receive on retirement. Indeed, according to an analysis by the Universities and College Union (UCU), what we’ll then receive will be even worse than members of the Teachers Pension Scheme, that applies to staff in the “new” universities.
Coincidentally, Private Eye (1375, p.36) notes that the pay of the USS’s chief investment officer, Roger Gray, rose for £600,000 to £900,000 last year. And that ‘In the three years that the fund’s deficit has risen by more than five-fold, Gray has trousered £2.3m. A spokeswoman for the scheme said Gray’s pay reflected “sustained outperformance” in beating investment benchmarks.’
I found myself wondering, whether the illustrious Roger is also going to see his pension reduced to a career average, and pension decimated. I doubt it because, as you say: ‘…it has made a relative few in the City very rich indeed as they have captured the wealth of the majority for their own private gain — as the stats make very clear.’
How very, very true.
So true Ivan
But as we know, rent seekers rule the world
http://www.thepensionsregulator.gov.uk/trustees/costs-and-charges-in-your-dc-scheme.aspx
This is a major scandal.
For the simple minded like me, does that -0.7% return mean you and your employer would have been better off sticking your pension contributions into a bog standard high street bank savings account?
Oh yes
Much better off
Does this figure tak into account inflation? if not it would have been better to put it under the bed.
I believe this is inflation adjusted i.e. a real rate of return
Is this true? The figures are net inflation no?
Not sure there are many “bog standard” high street savings accounts that would have made you “much better off” in a net inflation sitation of -0.70%. i.e. an account paying 0.80% currently.
Important to provide some context and accuracy around the figures….
These are ‘real’ rates of return
The pension industry has performed really well!
Large salaries and bonuses all around.
Oh; you mean it didn’t do so well for the suckers (sorry, investors)
Winners and losers. The motto being: don’t be an investor, be a pension fund manager.