Retirement savers can lose up to 15% of their pension funds to hidden charges from investment managers who waste money on unnecessary share trades, according to industry insiders.
Private pensions are stripped of around 0.7% in trading fees every year that are not disclosed to savers.
For savers contributing to a pension for 20 years, this can mean around 15p in the pound is siphoned off each year and can add up to several thousands of pounds of lost money.
Investment managers SCM Wealth claim retirement savers have paid out a staggering £3.1 billion in dealing costs that have rarely added any wealth to their funds.
The firm is urging the Financial Services Authority to tighten controls against undisclosed dealing costs so retirement savers can better see how much investment managers are charging them.
Alan Miller, chief investment officer at SCM Private, said: “The hidden pension fund dealing costs that we have identified could be removed simply through investing via index funds.
“Levels of transparency within the savings industry are shockingly poor, both in terms of transparency of fees and transparency of investments.
“The FSA and fund management trade bodies should force fund managers to reveal to investors the full costs of rampant buying and selling.”
SCM scrutinised 1,287 individual pension funds handling £392.5 billion of retirement savings.
A typical holding was retained for just nine months and the average 15-year return of unit trusts was a miserable 4.2%.
Pension companies and advisers recently came under attack for ripping off pension savers for ‘churning’ – switching pension funds to a different provider.
Consumer Focus, an independent consumer group, alleged retirement savers were losing out because pension transfers could lead them to lose money in charges and commissions.
Lord McFall, chairman of the Workplace Retirement Income Commission, also suggested high charges put off pension savers and that fees should be capped at 1.5% of the fund value for the government’s new NEST scheme.
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