We’ve all heard the one about the stockbroker for whom the definition of asset management is to invest your money and keep on investing it until there’s nothing left. But a new report by the Brussels-based investor rights group Better Finance suggests that, for Europe’s pension savers, it’s a joke that’s rather close to the bone.
The report is called Pension Savings: The Real Return and it analyses the actual returns on pensions in different countries across the continent over the past 16 years. In a nutshell it says, shockingly, that most people who save for retirement via a pension fund are financially worse off than if they had invested the money themselves.
“Unfortunately,” the concluded, “most pension savings did not, on average, return anything close to those of capital markets, and in too many cases even wiped out the real value for European pension savers.
“Fees and commissions, often complex and opaque, substantially reduce the performance of pension products. Taxes further reduce returns on investments.”
The problem, says Better Finance, is essentially a lack of access to relevant information. It’s almost impossible for investors to work out 1) how much in total they are paying to invest, once all the different costs are factored in, and 2) how much value the asset managers and other intermediaries they entrust with their savings actually add.
And for those who tell me (as they do all the time) that rip-off pensions are a foreign problem, to which the UK is somehow immune, the report singles out the UK for special blame. The difficulty of obtaining relevant information about costs and value, its says, is “surprising.. in a country which has been experiencing pre-funded retirement schemes for a long time.”
If there was ever a report which underlined the importance of greater transparency in asset management, this is it. By and large, the investing industry doesn’t want you to know how much you’re paying. Many in the industry — including, quite possibly, your own financial adviser — don’t fully appreciate the corrosive impact of compounded costs on long-term investment returns.
Of course, over the long term, our pensions do produce nominal returns. But you would expect that anyway. Equity markets, historically, have been remarkably generous to patient investors. But the truth is that very few of us achieve anything like market returns, and millions of Europeans are facing retirement in poverty as a result.
This is a serious problem. Let’s stop talking about it and start tackling it. You can begin by sharing this report:
Pension Savings: The Real Return (2016 Edition)
ROBIN POWELL is a freelance journalist and the founding editor of The Evidence-Based Investor. Based in Birmingham, England, he founded Ember Television and Regis Media, and he specialties in helping disruptive financial firms to grow. He also campaigns for a fair, transparent and sustainable investing industry. You can follow him on Twitter at @RobinJPowell.
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Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector.
