PENSIONS

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Economists have warned that pension funds face a double blow from a new Brussels tax which will turn the UK into the cash cow of Europe. They said the “crazy” tax on financial transactions would hit ordinary savers instead of the big banks. France and Germany want to use the billions raised to help bail out the struggling economies of debt-ridden EU states such as Greece. But the effect would be to eat away the hard-earned savings of British pensioners. It would see pension funds penalised twice, both when the fund manager arranges a transaction and again when the fund then buys or sells the asset.

Julie Patterson, director of the Investment Management Association, said, “On the face of it, given the information we’ve got so far, this looks crazy. It’s being called a Robin Hood tax but the point is that it hits ordinary citizens. How is that like Robin Hood? Robin Hood actually helped out ordinary citizens and took the money off the rich. The worry is that the rich will be able to readjust their affairs and get out of some or much of it. All long-term savers could be hit if we don’t get this sorted. This is a tax on savers, not banks.”

The European Commission is proposing a tax rate of 0.1% on the exchange of shares and bonds and 0.01% on derivative contracts. The Commission said it would ensure stability in the financial markets and force the banks to pay their “fair share” for their role in the financial crisis. London would be hardest hit by the tax, due to start in 2014, because the majority of banking transactions in Europe come through the City. Tory MP Mark Pritchard warned, “It would make Britain the cash cow of Europe. About 80% of any revenues would come from the City of London.”

Austria, Belgium, Norway and Spain are also in favour of the new tax and the commission has said that if other EU members oppose it, it will look at implementing it just in the 17 states of the eurozone. Experts say the tax would end up harming Britain’s economy and the Treasury agrees. A spokesman said, “Any financial transaction tax would have to apply globally, otherwise the transactions covered would simply relocate to countries not applying the tax." City brokers and investment firms have also threatened to leave London if the controversial levy is brought in.

Michael Spencer, chief executive of money brokers Icap, described the idea as “an example of European policymakers unable to address the real facts of life”. He dismissed estimates from Brussels that the tax would raise £49billion a year as “sadly deluded”. He said, “The ambition is simply not achievable and we hope likely to be vetoed by the British Government because it would effectively be a tax on the City of London for the benefit of the eurozone. If it is ever implemented we will just have to relocate. Our business would evaporate if we did not move, which we would do extremely rapidly." (Source: Daily Express, Sep/11)

British savers are retiring with pension pots worth 50% less than some of their European counterparts, despite having invested the same amount of money, because of an array of hidden charges. David Pitt-Watson says fees levied by Britain’s pensions system are blighting the retirement plans of millions of people, who are left with much less than overseas savers despite contributing just as much. Mr Pitt Watson, a senior executive at Hermes Fund Managers, says that a range of little-known fees and levies typically wipe more than £100,000 off the value of a middle-class worker’s private pension.

The total costs of some plans from high street names such as HSBC, Legal & General and Scottish Widows amount to more than £200,000 over 40 years for someone saving £200 a month. Mr Pitt-Watson, who helps manage the country’s biggest pension scheme on behalf of BT, has decided to speak out after The Daily Telegraph disclosed that more than £7.3 billion is being skimmed off savers’ investments every year. The money is being deducted through a range of questionable levies and fees which are often not explicitly disclosed.

According to Mr Pitt-Watson, someone saving £1,000 a year throughout their working lives could expect to retire on an inflation-protected pension worth £16,080 a year if they did not pay fees. However, the typical fees levied by British pension funds, which include several in addition to the “annual management charge” familiar to many investors, would reduce the payout to just £9,900 annually. Many popular pensions will be worth between a third and a half less for those retiring because of fees and practices. Although perfectly legal, they may be regarded as unfair for consumers.

A 25-year-old worker putting £200 a month into the HSBC World Selection Personal Pension for 40 years and receiving typical returns would be charged a total of £248,650, according to industry figures. The worker would be left with only £248,453, according to the Financial Services Authority, meaning that just over half the pension pot would be absorbed by costs. Legal and General’s Portfolio Pension would cost £209,000 in charges and deductions, while Scottish Widows’ Individual Personal Pension Plan would cost £160,000 of the £497,103 accumulated with a typically expected 7 per cent return.

By contrast, Scottish Life’s Pension Portfolio, one of the least costly, according to the FSA, would absorb only £83,138 in charges and deductions over 40 years. Low-cost European pension providers are currently looking to establish themselves in Britain, but have said they are facing widespread opposition from more established companies in this country. ATP, a large Danish pension fund, has just opened an office in London, where it plans to develop its low-cost schemes for the UK market. It charges about 0.04% a year to manage its fund, compared with 1.5% or more in this country. Source: Sunday Telegraph, Aug/10)

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