Taxes and charges, which is worse?

16 January 2012

It is a fair question.

Every day people complain about the taxes they have to pay and understandably so.  We have to pay tax on what we earn, we pay tax on much of what we buy and then we might even end up paying tax on death.

That is a lot of tax.  However it is the price that we pay in order to that we can have roads, hospitals, schools, social benefits, our bins collected, street lighting, and so on.  So whilst sometimes it can feel that the tax system isn’t very fair we do all at least get something of value in return.

Funny thing though is if you ask most people how much they pay in tax they don’t know! Generally the answer is ‘too much’.

It’s that same with pension and investment charges, in that most people have no idea what they are paying in charges.

Yet it is often the case that the more you pay in charges to pension and investment providers the less benefits you get!  You would expect to get better investment returns if you paid a fund manager more money in comparison to just  buying a fund that followed an equity index, for example the FTSE All Share Index.

Well the evidence suggests that the amount you pay in investment charges has no relation to the investment returns you will receive. In fact research shows that most highly paid fund managers can’t even beat their own benchmark targets, so essentially the more you pay the less you get!

So before you decide to campaign for lower taxes please make sure that you are not being robbed by overcharging investment and pension providers first, because at least you get something back for you tax payments.

Adrian