Report calls for pension statements

People taking out a personal pension should receive bank account-style statements to prevent them facing hidden costs, a think-tank has said.

There is a "huge danger" that inappropriate personal pensions are being sold to unsuspecting customers, the RSA (Royal Society for the encouragement of Arts, Manufactures and Commerce) warned.

Those selling such pensions often fail to reveal hidden costs including taxes, stock-lending fees and broking commissions, the RSA said.

It said pension funds should learn from countries such as Denmark, where people receive an annual account, presented like a bank statement, which shows their investment savings.

The report calls for the introduction of a "statement before purchase" which would show British workers the likely effect that fees will have on their pension outcome. Even when costs are declared, it is not done in a way in which many pension savers and small employers are likely to understand, the study said. It highlighted the "enormous" impact of fees, where an extra 2% annual charge can, over the lifetime of a pension, result in a halving of pension benefit.

The Seeing through the British Pension System report follows a previous RSA study which found that a large proportion of pensions disappear in fees - with charges swallowing up to 40% of the value of the pension over its lifetime.

The report's co-author, David Pitt Watson, said: "For markets to work effectively, consumers need to know what they are buying. It is extraordinary that, after so many years, such a system is not in place in this country."

Harinder Mann, who also wrote the report, said the proposals would give Britons greater confidence in the saving system.

Minister for Pensions Steve Webb said: "Charges are reducing and we expect them to go down even further now that other players are entering the market. If this does not happen, however, we have the power to act and we will.

"Diversity in pension provision is a good thing and different schemes will be right for different employers. Eleven million people will face a big drop in their living standards on retirement if they do not take action now and our priority is to ensure all pension schemes are regulated appropriately so savers are protected and not put off in the first place."