Nov 1, 2014

Pension fund charges that make retirees poor

"For too long, pension savers have been at the mercy of their pension provider." 

Pension fund charges make retirees poor.


Excessive pension fund fees capped by minister

"Full frontal assault" on pension charges revealed by minister could add thousands to workers' retirement pots

Pension fees will be legally capped in a move that will prevent workers from being “fleeced” of hundreds of thousands of pounds, ministers will announce on Wednesday.

Steve Webb, the pensions minister, said the limit is part of a “full frontal assault” on charges that can consume as much as half a worker’s retirement savings.

Older workers with long-standing occupational pensions are most exposed to what Mr Webb described as “excessive” fees.

The Coalition will present the cap as the latest in a string of measures they say will help households struggling with the rising cost of living.

The cap could be set as low as 0.75 per cent of the funds being managed, a lower level than previously proposed.
An Office of Fair Trading (OFT) investigation into the £275 billion pensions industry concluded that millions of workers are left short-changed and bewildered by retirement schemes that carry a complex web of up to 18 different hidden fees.
“For too long, private pension savers have been at the mercy of their pension provider. Apparently 'low’ charges such as 1 per cent per year can mount up to a huge sum over the course of a working life.”
A worker paying £100 a month into a pension with a 1 per cent charge will see £160,000 wiped off their retirement pot over a lifetime of saving, Mr Webb said.

UK announces 0.75 percent cap on annual pension scheme charges
Webb said the cap would transfer 200 million pounds ($331 million) "from the profits of the pensions industry to the pockets of savers" over the next 10 years.

But insurer Legal & General said the cap could have been set even lower and that one of the reasons people were not retiring with large enough pension pots was high charges.

"We would have liked the government to have capped auto-enrolment default schemes at 50 basis points, but we welcome the direction of travel," said Adrian Boulding, L&G's pensions strategy director.
However, even 0.75% is 10 times higher than the management fee for Norway's pension funds. Even 50 basis points (0.5%) is still very high.


According to the Norwegian Ministry of Finance report on the management of the Government Pension Fund in 2013, the management fee was only 0.07% for the Government Pension Fund Global and 0.09% for the Government Pension Fund Norway. The GPFG has about 5000 billion NOK (about US$750 billion).

The annual return, after deducting management fees, of the Norway Government Pension Fund Global is
- 9,93% for the last 12 months (Q3 2014 report)
- 6.3% over the last 10 years
- 5.6% since Jan 1998.


The Central Provident Fund, which has a balance of S$260 billion contributed from worker salaries, is entirely managed by the Singapore Government. The government guarantees an interest of 2.5 to 4%, with an average of slightly more than 3%.

The CPF money is reportedly invested by GIC. The reported annualised returns are
- 12.4%,
- 7.0% and
- 6.5% for the five-year, 10-year and 20-year time periods respectively.

In return for the guaranteed return of about 3%, the Singapore government takes away any investment returns over that. For example, for the last five-year period, the investment return is 12.4%. The CPF interest is about 3%. The government management fee works out to be about 9%. This is 100 times more than the management fee rate (0.09%) for the Norway government pension funds.

Oct 1, 2014

Citizen dividend: Everything is ready, except for the East wind.

Red Cliffs Battle. Waiting for the East Wind (From Wiki)
In the famous Battle of Red Cliffs during the time of the three kingdoms in China 2000 years ago, the defender had all the battle materials and soldiers prepared and waited for the East wind to blow, to bring the fire across the river to the attacker.

In Alaska, the Alaska Permanent Fund was set up 3 decades ago. Within a few years, the wind of citizen dividend started, and the investment money from the fund has been flowing in to Alaskans' pockets for 3 decades. This year, every Alaskan will get US$1884.

In Singapore, the permanent Singapore reserve was set up a few decades ago. Money has been pouring in to the permanent reserve with nothing coming out. It is big enough to easily distribute a citizen dividend of $10,000. When will the wind of citizen dividend blow?

In many countries, e.g., UK and Switzerland, that are looking at a citizen dividend or a universal basic income, their biggest problem is looking for the money. In quite a few countries, e.g., Singapore, Kuwait and Norway, the money is already there. Waiting. Waiting for citizens to really believe that they are owners of their country's sovereign wealth funds and other public properties.

Everything is ready, except for the East wind.

Sep 16, 2014

The Founder of the Singapore Permanent Reserve


The Singapore Reserve is permanent. It cannot be used by the Prime Minister, Cabinet or Parliament without an explicit written agreement from the elected President. Half its investment income can be used by the Parliament.

For comparison, the Alaska Permanent Fund is permanent. It's income is distributed as an annual citizen dividend to all residents. It's income can be diverted and used by the Alaskan politicians with a change to the Alaska Dividend law.