Beware the advisers who could prey on your pension

Everyone should be encouraged to plan for a long and happy retirement and not be over-reliant on the state. As an incentive, the Government makes a good contribution.

If £8,000 is paid in, £2,000 is automatically added in basic tax relief. Even a baby or non-earner can pay in £2,880 annually which enables £3,600 to go into a pension.

Yet millions starting a pension for the first time are finding that much – in some cases all – of their first contribution is being taken by unscrupulous advisers.

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They have latched on to the auto-enrolment scheme promoted by the Government. Low earners are being encouraged to join retirement schemes offered by their employers, many of whom have called in ‘pension advisers’ to guide staff.

Employers and pension providers should both realise that it is in their interests for as many as possible to sign up for a future private retirement income.

Yet the cost – sometimes up to £500 – is being deducted from the initial, perhaps annual contribution of the employee. This effectively means their first year’s pension pot is zero.

If an employee moves jobs, they may actually be stung again and again for ‘consultancy’ fees.

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Not surprisingly, the Work and Pensions Select Committee reported last month that the practice has the potential to cause serious consumer detriment. It rightly urged a ban “without delay”.

The committee’s chairman, Dame Anne Begg, revealed that some of the fees imposed were “ridiculously high”.

The Pensions Minister, Steve Webb, is consulting and checking back with his civil servants. This should take five minutes.

As a matter of urgency, he should name any pension provider who will not absorb reasonable costs and ensure the newly created Financial Conduct Authority takes a proactive approach.

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The FCA’s predecessor, the unlamented FSA, was always following up after the horse had bolted. The FCA should already be on to this case and actively intervene.

Good employers should negotiate to obtain top quality pension advisers and share their costs with pension providers. It’s not right that a relatively poorly paid employee should shoulder such a cost.

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