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BLOG: Are you stuck in a rip-off pension?

The OFT hopes to tackle the problem of unattractive workplace pensions but consumers must take action to secure a healthy income in retirement.
In its biggest report on pensions since 1997, the UK’s Office of Fair Trading (OFT) has confirmed what many have suspected for years; hundreds of thousands of people are getting a raw deal from having their retirement funds stuck in unattractive workplace pensions.
And that withering assessment is just based on hefty, and often opaque charges: it doesn’t even factor in the dreary performance being delivered by many pensions, a major problem in its own right.
The OFT report has found that £40bn of pension monies may be offering poor value for money and estimates that the annual charges on pension schemes taken-out before 2001 are 26 per cent higher than for schemes set up post 2001.
This problem has the potential to grow significantly as up to 9 million individuals are expected to start contributing to pension arrangements over the next five years as part of the Government’s Auto-Enrolment Workplace Pension initiative.
In an effort to ensure that new pension savers do not face rip-off charges the OFT has secured agreement from The Pensions Regulator (TPR) to take important steps in tackling these problems.

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Importantly, the OFT report recognises that pensions are complex and difficult for employees and their employers to understand. They are complex because of successive layers of legislation and “reform” which also makes them expensive to run and administer. The constant urge by politicians to meddle with the allowances does not help understanding or confidence either and the financial services industry then exacerbates these problems through excessive use of technical jargon, rather than plain English.
As a result, hundreds of thousands, of Britons are sleepwalking towards a poorer retirement than they need to.
With most people changing jobs several times during their working life, it is likely that many will have acquired a number of these underwhelming pension pots.
However, a combination of inertia and confusion means they often they will have no idea as to whether these plans represent good value or are delivering satisfactory performance.
Putting up with sub-standard pensions, whether workplace pensions or private pensions, is a however a costly mistake: with the days of gold-plated final salary pensions gone for all but the lucky few, the returns on your pension plans are going to determine the quality of lifestyle you lead in retirement. Ignore your pensions at your peril.
David Smith is wealth management director at Bestinvest