Pension companies want to join regulators in giving retirement savers clearer information about fees and charges from workplace schemes.
Association of British Insurance director general Otto Thoresen has written to the Financial Services Authority and The Pensions Regulator urging they improve transparency across the whole of the pensions industry and raise consumer confidence ahead of the introduction of auto-enrolment this autumn.
The ABI – the trade body for the UK’s pensions and insurance industry – want an industry code of practice in place by the end of the year.
What the pension code will cover
They want the code to cover:
- A consistent and simple disclosure of charges to employees across contract and trust-based pension schemes
- Transaction costs, such as broking fees, available to employees in all contract and trust-based schemes
- All employees receive regular, clear and meaningful information on charges and transaction costs as their funds build
- Existing workplace pensions to ensure employees are provided with clear and comprehensive information on their charges.
Thoresen said: “While charges for contract-based pensions have reduced dramatically in recent years, we must ensure that, across all types of defined contribution pensions, information on charges and costs is available, clear and meaningful, and helps employees make the right decisions about their pension.
Openness and transparency
“Auto-enrolment will have a critical impact on the future retirement prospects of today’s workers. If we are to minimise opt-outs it will be vital that employees understand what they are paying and have confidence in the pensions they are being auto-enrolled into.
“Both parts of the pensions world need to go further to ensure all workplace savers have the information they need to make the best choices for their future. For too long, different parts of the private pensions system, regulated by two different regulators, have given employees too little information about what they are paying.
“Openness and transparency are now expected by customers, so we all have to do better. I have written to the Pensions Regulator and FSA to set out what I believe we can achieve together.”
The government, consumer groups and regulators have pressured pension firms to make costs clearer to retirement savers – with the government threatening to make new laws to force the issue if pension firms failed to voluntarily put a system in place.
A recent report revealed 90% of the country’s largest pension fund managers did not tell retirement savers about charges could wipe thousands off the value of a typical pension.
Fees and charges wipe 17% off a pension
RSA, a think tank, argued in the report that savers in the UK could not access simple, low-cost pensions readily available elsewhere, while the National Audit Office (NAO) added weight to the protests by ruling pension firms had “insufficient accountability”.
The NAO was looking at the running of defined contribution (DC) pensions, and discovered around a third of savers and a fifth of schemes, said that they had no way of working out if the charges they paid were value for money.
According to the NAO, the final value of pension pots for savers contributing the same amount and undergoing the same stock market performance can vary by around 17% due to fees and charges levied by the different schemes.
Many industry insiders see the ABI move as an eleventh-hour effort by pension firms to clean up their act over fees and charges before the government intervenes with legislation.