The big corporations have been in control of your pension fund for years.
Using their puppets – our politicians – they made sure the rules worked in their favour, not yours. You had no choice. You had to pay into a pension pot they managed. And they didn’t invest your money until they’d taken their cut in the form of fees. Hefty fees.
A lot of pension funds have been charging significant fees for handling your investments, even when they perform poorly. You’d end up paying a management fee from the pension company, an annual investment fund manager charge, establishment fees, dealing fees and brokers' bonuses. And you might be paying the commission to a financial advisor on top of that.
Dr Paul Woolley from the London School of Economics told Panorama in 2010, “Fund management fees and brokerage have doubled in the last ten years, amounting to one and a half percent in fees. But the net return to pension funds collectively has reduced.”
So what happened? Not the compounding interest you’d hoped for. The big corporates got fat on the profits of your labour. You were left to work longer and longer for a retirement date that was getting more and more elusive. It was…
According to BBC Panorama, pension companies take the equivalent of 80% of the money paid into some pension plans out in fees and commissions. If you put in £120,000 into one HSBC pension plan over 40 years, it would result in £99,900 being taken out in fees and commissions. A Co-op Individual Personal Pension took out nearly £96,000 in fees across 40 years from deposits of £120,000.
The great pension rip-off!
The Conservatives have changed all this. Recent pension reforms (although about thirty years too late) now give you much more choice in where your future is invested. Since April 2015, you have a variety of options for your pension pot.
If you don’t trust big corporates, you can buy property. If you don’t like the idea of an annuity worth a fraction of what your pension was worth, you can cash it in or never take it at all.
You can leave it where it is — but complacency could be the biggest threat to your wealth. A lot of people over-estimate how much they’ll receive from their pension and end up facing a poverty-stricken old age.
I’ll hold my hands up here. I’m very interested in these changes – in fact, more than interested. My business teaches people how to invest in property – something that was off limits to many people before the changes. And I’ve been saying property is the new pension since 2008. I even make that exact point on the cover of my 2009 bestselling book The 3+1 Plan.
It’s almost criminal…
This isn’t a new concept. It’s just taken the politicians a good six years to listen to reason. But it was even more sinister than it appears.
Firstly, all these people taking money out of their pensions will line government coffers through taxation. Secondly, at some point, the government is going to have to face up to the fact they got it totally wrong, and they’ve left two generations of people without a suitable pension.
I believe the second reason is behind why they’ve done this. In ten or twenty years, they will be able to wash their hands of pensions. This is just the first step towards the complete failure of pensions in their current form.
And this is affecting more and more people. We now have two generations of people who won’t have a traditional retirement where they can stop working. Even now, one in five of British 65 to 69-year-olds is still working. In the future, many people will be working well until their nineties – after all, we’re living longer. By 2030, the average man will live to 85 and the average woman to 87 – even longer in some areas. Living to 100 will be the norm for future generations.
In the past, you would look forward to settling down after all those years of hard work. If you get it wrong now, you might not be able to afford to retire at all. It was bad, very bad, but now you can do something about it. You have the freedom to grow and prosper, and you can provide for your retirement on your terms.
Live with passion and fun,
Brett
