The charges imposed on pension savers is a hot topic.

Claims by the Labour Party that fees and charges can be so high that they can consume up to €6 out of every €10 of the final pension pot are strongly disputed by the industry.

But others argue that charges are high here, even if they are not often that high.

And there is little doubt that pension charges are not fully understood by savers mainly due to the opaque nature of many of the charges and their structures.

Financial adviser Frank Conway used to work in the US and still keeps in touch with former colleagues there.

“Frankly, they are shocked at the charges here and call it an embarrassment,” he says.

The issue has prompted moves by the Labour Party’s Ged Nash to draw up legislation that would force pension providers to be more transparent about charges.

Mr Nash says independent research forwarded to him has found the typical fees in Ireland are extremely high. His questioning of Social Protection Minister Heather Humphreys on the issue has prompted her to seek a report on pension costs from the Pensions Council.

The Pensions Council advises the minister on policy on pensions, represents consumer interests, and helps to ensure the system has a consumer focus, according to her department.

In a Dáil reply to Mr Nash, Ms Humphreys said: “I have recently written to the Pensions Council requesting that they consider the issue of pension costs in Irish schemes, including issues with regard to the transparency of these costs.

“Specifically, I have asked the council to consider the merits of introducing a Cost Transparency Initiative, along the lines of similar initiatives in the UK, Denmark and the Netherlands.”

A cost transparency initiative would expose what costs are being incurred at a much deeper level.

Such an exercise would break down the pension fund manager’s annual management charge, but also other costs such as administration, custody, and transaction costs. These are the very charges that are often hidden but can have a big impact on funds.

Ms Humphreys said figures on average pension charges across the European Union were not readily available.

Pension savings are made over long periods of time.

A 2012 report on pension charges compiled by the Department of Social Protection, assisted by the Pensions Board, the Central Bank and PwC, found fees and charges here are high on personal pension schemes and smaller occupational schemes. This was confirmed in a 2014 Organisation for Economic Co-operation and Development report on Irish pensions.

The 2021 report found that average annual fees were at least 2.18pc.

It said: “An individual aged 30 years who saves €250 per month over 35 years would result in a fund of €200,000 resulting in a pension of €10,000 per annum.”

If the average charge of 2.18pc a year is applied to this fund, the final fund is reduced by 31pc, the PwC report stated. This means the fund is down €62,000, resulting in a lower pension of €6,900 a year.

“This impact would be significantly higher where the maximum charges apply.”

Labour has an 86-page report that found on average almost a third of the value of an individual’s retirement savings can be consumed by charges. This independent report calculates that the impact amounts to losses of up to 60pc of the value of the pot by retirement age. This is based on pension firms charging as much as 3pc a year on the value of the entire pension pot.

Industry body Insurance Ireland says that charging structure no longer applies.

“The Irish pensions market is competitive, and the report referenced by the Labour Party appears to be based on data from 10 years ago, rather than on current pension charges in Ireland.”

It said people who buy pension products receive full disclosure of all charges.

This includes product charges, investment and commission costs, as well as the projected impact of those charges on a customer’s pension fund over time in a standard format set out by regulation.

Jerry Moriarty, chief executive of the Irish Association of Pension Funds, which represents trustees of schemes, says he is not aware of any occupational pension schemes with charges as high as 3pc a year.

A survey last year found over half the pension schemes that responded had charges for their default fund of less than 0.5pc of the fund.

Charges tend to be higher on individual products for a number of reasons including the fact that the costs of setting them up can be higher as there tends to be meetings and advice involved and there isn’t an employer to pick up those costs so they are built into the product cost, he said.

We certainly need more transparency, especially if the State ever gets around to introducing auto-enrolment for the thousands of workers who have no private or occupational pension provision. Full exposure of fees and investor accountability will need to be key elements of the promised auto-enrolment scheme.

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