Misplaced concerns: your pension is not about how much you put in, it is…

…about how much the fund management industry takes out.

At least this is what a documentary – How to Win the Loser’s Game – going online tomorrow has concluded.

Why do I care? Why I decided to tell you about this documentary?

I’ve told you that I am concerned about my pension; I also told you why my grandmother never worried about hers.

Today two e-mails landed in my inbox minutes from each other:

• One of them told me that my pension scheme has been audited and it turns out that it is in much more serious deficit than previously thought. This means the conditions of the pension will be changed and I’m likely to lose big time. And I thought today is going well, you see.
• The second one was from Robin Powell, from SensibleInvesting.tv telling me that ‘How to Win the Loser’s Game’ will be online tomorrow (oh, Robin also produced and presented the documentary).

I thought this is destiny.

This is the trailer for the documentary: scary stuff, uh?

This is the media release (I couldn’t have said it better):

Instead of persuading us to invest more in our pension plans, governments and regulators should focus on how much the fund management industry is taking out of them.

That’s the main conclusion of an 80-minute documentary that lifts the lid on an industry which is quietly and steadily eroding the capital of ordinary savers while delivering consistently poor investment returns.

Nine months in the making, How to Win the Loser’s Game features some of the biggest names and brightest minds in the investing world, from Vanguard founder John Bogle to MoneyWeek editor Merryn Somerset Webb and Nobel Prize- winning economists Eugene Fama and William Sharpe.

Produced by Birmingham-based Sensible Investing TV, the film is being serialised in ten weekly parts. The full-length documentary goes online on November 5th.

“We keep hearing politicians say that people aren’t putting enough money away for their retirement,” says Robin Powell, the programme’s producer and presenter.

“That is of course true. But an even bigger problem is that savers are typically losing up to half of all the returns they make in charges.

“The industry is simply taking more out of of our pensions in fees than markets can deliver in returns, after inflation. It’s no wonder, then, that so many people think it isn’t worth bothering to invest.”

Better Finance, which lobbies the EU on behalf of consumers, recently released a report which revealed that, after charges, the real value of pension pots held by British savers had shrunk by 0.7% a year on average since the year 2000.

That makes the UK one of the worst nations in Europe for pension performance, along with Italy and Spain.

“Our documentary shows how a combination of compounding charges and on-going transaction costs is having a devastating impact on the value of people’s long-term investments,” says Powell.

“The Better Finance report underlines just how acute this problem has become.

“The UK fund industry is unfit for purpose, and yet the IMA continues to lobby against much-needed reforms, such as greater transparency on fees.

“The recent appointment of Lord Hill, a former lobbyist for the fund industry, as the EU’s financial services commissioner is another worrying development.”

In the film, Michael Johnson from the Centre for Policy Studies urges the UK Government to follow the lead of Australia, Norway and the State of California in dispensing with active fund management for public pensions, in favour of cheaper, passive strategies.

“Governments are realising that to the extent that pensioners have small pensions, they ultimately fall back on the state for assistance. So there is a very string economic rationale to have pension funds perform better,” says Johnson.

But he warns that any attempts at reform will meet with stiff opposition from the industry.

“The trade bodies (of which the IMA is one) are masters at doing just enough to keep the show on the road, in terms of hinting that change and improvement or the consumer is around the corner.

“This is an industry that is a genius at obfuscation and bamboozlement, with terminology that is utterly meaningless. And it needs to be challenged.”

And this is what I’d like us to do:

I will watch the documentary tomorrow and prepare a discussion article for Thursday.

You come back and we’ll talk about it; it’s important to share what do the proposals that have been made mean for each of us.

How about that?

photo credit: Leshaines123 via photopin cc