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Monthly pension fund fees a scam, says ombudsman (Irish Independent)

04 November 2011
Pensions ombudsman Paul Kenny has described as a "scam" the way some fund managers impose monthly fees on pension funds where people have left the scheme.

Mr Kenny also criticised construction companies for failing to make contributions to pension funds on behalf of workers.

The pensions watchdog called for legislative changes to stop pension fund managers charging a monthly fixed fee on funds when people have left the scheme to take up another job or to work abroad.

"I detest these charges. A good hard look at some of these charges is going to have to be taken."

Known as maintenance fees, these charges can be as low as €1 or €1.60 a month, but imposing them has a very large impact over the period until the person retires.

These fees are in addition to annual charges, usually 1pc of the fund's value, on defined contribution pension schemes.

"I don't usually use that sort of language, but a scam is a word that does spring to mind," Mr Kenny said yesterday when launching his office's annual report. He also said he had a problem with the fees structure in general imposed on pension schemes which, he said, can be as high as 6pc a year of the value of funds.

"The costs of these fees comes out of the fund. If your fund is very small, then a fixed fee is going to have a very large impact."

Mr Kenny, who resolves disputes over pensions, also hit out at construction companies for failing to pay employer contributions into the construction industry pension scheme.

His views on this were echoed by Minister for Social and Family Affairs Mary Hanafin, who has responsibility for pensions policy. Minister Hanafin said it was "immoral" for construction industry bosses to withhold contributions to pension funds on behalf of workers.

The Pensions Ombudsman is currently dealing with half a dozen cases were building workers have died but their families are unable to draw down death-in-service benefits because the employer had not paid in the contributions.

Mr Kenny warned that he had already taken a number of criminal proceedings against employers over this failure and he said he would continue to go to the courts.

The Ombudsman revealed that there has been a 17pc increase in the number of complaints received to 515, and a 16pc rise in telephone inquiries, to 3,600.

Chaos in the investment markets has meant that Mr Kenny's office has had to open 49pc more cases this year than last.

Mr Kenny said he expected to see his caseload rise further next year as investment markets continue to record huge losses.