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Pension ‘trail commissions’ create a trail of misery

Recent research from the watchdog Consumer Focus shows that the banned pension trail commissions paid to independent financial advisers may continue to cost some pension savers millions of pounds. This is money that could be invested in the saver’s pension scheme rather than the financial advisers’ pockets.

Despite Financial Services Authority recommendations that become effective in 2013, the current sales of pension products on a ‘trail commission’ basis means that savers could still be paying up to 40% of their pension savings in commission by the time their pension ends and well past 2013.

Chrissie Maher OBE, founder of Plain English Campaign says, “It’s already close to a crime that people have to wade through the jargon and gobbledygook when they take out a pension. But what’s worse is that what is left unsaid can leave a pensioner penniless because they didn't understand what they were signing up for at the time.”

Since the late 1980s our Government has been moving towards self-management of pensions. Plain English Campaign calls for Government and the regulatory bodies of financial services to make this responsibility realistic and fair. They can start by giving people all the information they need, and in a way that can be understood and dealt with in a single reading.

The campaign recently worked with pension experts Annuity Direct UK Ltd to create an online booklet, ‘Protecting your pension pot’, which gives people a basic understanding of just what a pension is about.

The campaign also reviewed a selection of pension statements as part of a Which? Pension report and found that the biggest obstacles were jargon and complex calculations.

The complexity of commission charges can be seen by people to be a 'smokescreen' for hiding the financial costs they might suffer, particularly when switching pension schemes.

Chrissie Maher continues, “We cannot expect everyone to be experts on everything, but people do have a right to make the best possible choice with clear and correct information in their hands. My pension pot is meant to keep me from being a burden on others, so greedy commission hunters can just get their hands off it.”

The campaign also provides a free online plain English A to Z of pension terms. These terms have changed over the years to match the industry’s changing procedures and products, and changes in the law. This glossary demonstrates the obstacles people face when they have to deal with pension documents written decades before their retirement.

For example, the relatively recent industry term ‘trail commission’ gives no hint of its actual meaning, and it is interpreted differently between pension providers. What could be a one-off charge for some pensions savers could become years of increasing charges for others.

Some examples of unclear pension terms:

tied agent:
This is somebody who can only give advice on the financial products (such as pensions) sold by one firm or group.

stakeholder pension:
Stakeholder pensions aim to provide a low-cost, transparent and flexible way for people to save for their retirement.

This is a fixed amount of money paid each year until a particular event (such as a death).

terminal bonus:
This is a figure added to a policy when it ends.

trail commission:
This refers to the charge paid every year by pension savers to independent financial advisers, typically 0.5% of the total pension fund, for as long as they hold the pension, even if the financial adviser provides no further service for them after setting up the pension.


These explanations for the terms are selected from the Consumer Focus report ‘Is it advisable?’, and Plain English Campaign’s 'A to Z of pension terms'. We consider these plain English explanations ideal for use by all pension advisers and providers when communicating with the public.

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