Two weeks ago in this space, I claimed to have just taken out my first pension. In the style of Tony Blair, I can assure you that I told you this entirely in good faith. Unfortunately, it was not actually true. What I had done was fill up all the relevant forms, pick the funds I wanted and sign the direct debit mandates. Indeed, I fully expected by now to have made my first downpayment on a gloriously pampered retirement.
What I had not expected was a letter from the pension provider confirming my policy that included all manner of charges that I didn’t recall discussing with my financial adviser: initial fees, annual fees, up-front commission, trailing commission. The upshot was that more than 50% of my first year contributions were to be taken up in charges and, even on the insurer’s bullish growth projections, I’d end up paying nearly 20% of my fund in charges over the next 25 years. At this moment of maximum vulnerability, a reader took the trouble to e-mail me with an analysis that showed what apalling value annuity policies can be. Either the insurance companies are raking off an eye-watering amount again in charges, or they have concluded there is now a genuine risk some of us will live forever.
So for the time being, I’ve put my pension plans on hold pending a re-think. It’s not that I object to paying fees. Even financial advisers have got to eat. But the problem is that, in a period of low inflation and low interest rates, the effect of paying high up-front fees is often to wipe out any returns that might accrue to the saver. This, surely, is at the heart of the public’s loss of faith in the retail financial services industry, which has been very much in the news this week. The government blames the industry for its own predicament, citing successive fat cat and mis-selling scandals for putting people off saving. No doubt the industry has much to answer for, but the government’s solution – to pile on yet more regulation – is exactly the opposite of what is needed. Anything that adds to the industry’s costs, and thus to the charges borne by savers, can only make saving even less attractive for those whom the government wants to reassure.
Meanwhile, I’ve had no problem finding a use for the money I had earmarked for my pension. At the risk of inciting apoplexy among members of the MoneyWeek Roundtable, I’m buying a house. This wasn’t my idea. It’s just that after six months of marriage, my wife has decided she’d like to live under a different stretch of the M40. Of course I’m nervous. But I take comfort from those who argue that interest rates could start to fall again next year. After all, if you can’t make a decent return on your savings, you might as well live in a bigger house.