Irish Economy: At a time when many of private sector pension funds are facing closure, a shock report for the Government reveals that pension fund charges are taking as much as 17.4% of retirement savings in occupational schemes.
The majority of Irish private sector workers have no pension and those who do are facing reduced benefits while the Government will have seized almost €2bn from pension funds by 2014. So the charges made by financial firms are topped off by the 0.6% annual levy imposed on all private sector pension funds by the Government.
The 'Report on Pension Charges in Ireland 2012,' was published last night. It was commissioned by the Department of Social Protection, with assistance from the Pensions Board, the Central Bank and PricewaterhouseCoopers. It studied the impact of disclosed and hidden charges on retirement savings.
The charges for pensions such as personal retirement savings accounts (PRSAs) and executive pensions incur an average cost of between 21 and 31%.
The PRSA schemes were pushed on low-paid workers by Pensions Board staff (who have one of the world's best staff schemes linked with earnings) during the boom, who set up stands at public events such as racecourses.
The report says that while every pension fund scheme member is by law entitled to receive an annual pension statement outlining the charges levied on their savings, almost two-thirds of trustees said they had difficulty getting some of the information on charges required for the report.
The study found that there was no evidence of a culture in the pensions industry of providing clear information in a simple manner.
The report provides the following example. If an individual age 35 saves €250 per month for a pension for 30 years, a fund of approximately €200,000 is created which results in a pension of about €10,000 per annum. Apply the average charge of 2.18% per annum to this fund and the final fund is reduced by 31% i.e. the fund is reduced by €62,000, resulting in a lower pension of €6,900 per annum. This impact would be significantly higher where the maximum charges apply.
About 80% of schemes are “under water” and most employers are closing defined benefit schemes, where there is a guaranteed payout.
The study suggests improving awareness of charges and transparency, including monitoring compliance with new regulations under the Consumer Protection Code.