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Pensioners Suckered by 1% Levy

Posted on: May 15th, 2011

DO you pay into a pension fund? No? Well, you are the cute hoor. You do? Well, name your pension fund manager. You cannot?

Not surprising, because that is exactly where the titans of the pensions industry want to keep you.

The pensions industry is divided into two parts: those who take and those who give.

A handful of managers take. Hundreds of thousands of subscribers to pension funds give.

Last week we were being brainwashed. We were constantly told that the “pensions industry” was doing its bit for the national finances.

Nothing could be further from the truth. The pillars of the pensions industry are flourishing, unfazed by the sudden 1 per cent pensions levy. It is the familiar victims of the industry who are now facing their toughest assault.

Pension parasites, who have fed off the carcass for decades, are being joined by a competing vulture. The Government has stumbled on a new source of sustenance, spotting that there was plenty of flesh left on the neglected corpse. They have arrived late to the pensions feast, but not too late.

There are now so many predators picking at the carcass that there will soon be little left for the pensioners themselves.

The Government needed €470m a year to pay for its modest Jobs Initiative. It spied an €80bn lump of loot, roughly the sum still left in pension funds under management. A crude 0.6 per cent snatch from this booty would pay for the ‘Jobs Initiative’. So pensioners’ savings became the latest lifeline for a bankrupt government.

As most pension funds are themselves already bust, the destitute had resolved to rob the insolvent. Those small savers, who have conscientiously replenished their pension pots for decades, are again being plundered. Helpless, ignorant and battered, their funds are destined for deeper deficits.

Meanwhile, those who have — at least partly — caused their poverty are living high on the hog.

Last week I tried to find out how much the vultures are sucking from the €80bn pot. Not surprisingly, those who manage the funds prefer to remain below the radar. They do not like coming to the telephone. Their fees are opaque, varied and outrageous. Their investment performance is pitiful.

Wickedly cleverly, they charge in percentages. No hourly rates or payment per project for them. Percentages sound small and harmless, but big figures mean big fees. A small percentage of €80bn is still a staggering sum.

The reactions from chiefs of the “pensions industry” were confusing. Some told me that the average management charge was 0.5 per cent, others 1 per cent, others put it as high as 1.5 per cent. Entry charges to some pension schemes were a stunning 5 per cent, plus a 1 per cent annual management charge.

Those fund managers who could achieve economies of scale were sometimes said to have reduced their rates to as low as 0.3 per cent. Not one insider would venture a guess as to how much in total the industry robbed annually from members in commissions, fees, etc.

I listened to Gerry Hassett of Irish Life & Permanent –our largest pensions provider — on RTE rubbishing as a “red herring” suggestions that the Government should take a further slice of their fees, saying that the standard management fee was 1 per cent. He went on with a lot of syrupy bull about how the “pensions community” has to make its contribution.

There is no pensions “community”. There are the army of suckers and the faceless plutocrats. They have nothing in common.

Everyone to whom I spoke admitted that individual pensioners, many of whom had set up their own fund, suffered the most from charges. In relative terms this is probably true. In absolute terms it is misleading, because virtually every pension contributor in Ireland is being screwed — so rich are the pickings. It is merely a matter of scale .

Even if the average management charge really was as little as 1 per cent of the total pension funds under management, the annual fees collected would come to a stunning €800m a year. Far more than the extra €470m being confiscated by the Government from those same unfortunate innocents already paying the €800m fees.

Under the Government’s present proposal, the same victims will be paying both. If the average charge is 0.5 per cent the fees will be only(!) €400m.

If the Government wants to raise money from the pensions “industry”, it should ambush the predators, not the prey. There are wads of fat hiding in the carriages of the Irish pensions gravy train, waiting to be discovered and taxed.

Happily, in answer to a question I put to him in the Dail on Wednesday, Enda Kenny promised to investigate the activities of Ireland’s pensions czars. If he is serious, he will unveil a history of high charges and low performance. He will find a new goldmine, a vein he should tap long before he confiscates ordinary citizens’ savings.

Investigators who take even a cursory look at how these fund managers have performed will be shell-shocked. In the first four months of this year, Ireland’s pension funds have, on average, lost money. Quite an achievement at a time when the main equity markets of the world recovered by over 5 per cent. Even the Irish Stock Market recoup-ed 4.4 per cent in that period.

Their brutal performance is difficult to fathom. Whatever their level of incompetence, how a collection of even half- witted fund managers could so decisively underperform a basket of equities is a mystery. But they did. Less recently on average they trotted in bottom of the OECD national fund managers league.

Over the last 10 years, Irish pension funds have grown by a pathetic 1.2 per annum, embarrassingly outpaced by inflation running at 2.4 per cent. Over three years they have actually lost 1.5 per cent a year, and over five an even bigger 1.7 per cent.

All this time, the fund managers have extracted huge fees for their “expertise”.

The fees over five years, and three years, have probably tipped the funds into losses. The managers are making a mint while the members are being mugged.

If we could determine how much those milking our pension funds trousered over that five-year period and measure it against their members’ losses, perhaps the Government might realise where the money in the “pensions industry” was disappearing. They are taxing the wrong, but easier, target.

My guess is that well over €2bn has found its way into the mouths of predator professionals feeding off Irish pensions in the last, dismal decade.

Several surveys, including a recent one by the think-tank Tasc, have found that high charges swallowed up the value of many pensions. This is a direct transfer of wealth from the members to the managers.

Pension fund managers are not the only beneficiaries of the pensions honey pot. Many of the fund managers are themselves owned by big banks, including AIB and Bank of Ireland. Stockbrokers, who enjoy as juicy a regime for commissions as fund managers do for fees, are milking pension funds. There are administration fees, custodial fees, audit fees, forex fees, policy fees and entry fees. God knows, it would be fascinating to shine a light on these.

Enda Kenny’s willingness to probe the “pensions industry” is brilliant. Even before he starts asking questions, he could insist that the industry charges by the job and by the hour, not in percentages that yield rich rewards for shoddy work.

Perhaps he can complete his investigation before legislation to clobber ordinary pension savers is rushed through the Dail.