A new report by the Work and Pensions Select Committee, chaired by Frank Field MP, has called on pension schemes to be forced to publish charges in full, including transaction costs
At present, new rules ushered in last April recommend pension schemes publish this information, but disclosing was made voluntary rather than mandatory.
In light of this, the Work and Pensions Select Committee is concerned that take-up will not be high and has called for disclosure of all charges to be made mandatory.
The hard-hitting report states “the government and regulators should not wait for the industry to fail to act voluntarily, as they have been done so many times in the past”.
The report notes: “We fully recognise that value for money is not solely about costs, but costs inevitably form an important part of the equation. Complexity and layers of intermediaries mean that many trustees do not have access to suitable information to make judgements about the costs of managing their schemes.
“Without an agreed definition of value for money, it is not possible to make effective comparisons. Schemes should clearly communicate their interpretation of value for money, and how it will be achieved, to their members.”
Frank Field MP, chairman of the committee, said: “Ripping off pension savers could be eliminated. The select committee is calling on the government to shine the searchlights into that part of the financial industry that has settled down to misinforming, mischarging, overcharging and making a fat living off the hard-earned savings of pensioners.”
In addition, the report called on the Financial Conduct Authority to cap pension charges at 0.75% for its proposed four ready-made investment solutions, so-called investment pathways. At present, there is no charge cap in place.
These four pathways, which from next April will be offered by all pension providers for customers considering entering drawdown, will help to stop the large number of non-advised pension savers who currently move their pension pots into cash at retirement.
Separately, the Work and Pensions Select Committee weighed into pension dashboards, a technological initiative that will allow pension savers to see all their pension pots in one place.
The first dashboard, a non-commercial dashboard hosted by the Single Financial Guidance Body (SFGB), is expected to be made available in the coming months. Then, in the future, other private dashboards are expected to launch.
But there are various teething problems, one being that state pension information will not be available on day one when the non-commercial dashboard launches.
Moreover, the government said in April that pension schemes should be ready to hand over consumers’ information on dashboards “within three to four years”. This raises the prospect of consumers not being able to see all their pension information in one place until 2023.
The Work and Pensions Select Committee has called for state pension information to be available at launch and also recommends that retirement income targets are implemented.
The recommendations were welcomed by Andy Agathangelou, founder of the Transparency Task Force, which aims to raise awareness on the lack of transparency in the financial services sector.
He says: “We wholeheartedly welcome today’s first-class analysis and report by the Work and Pensions Committee, which calls for exactly the kind of effective cost disclosure framework that will empower pension savers and those that represent their interests to shop wisely.
“I can’t think of any reason why any right-minded stakeholder, be they politician, policymaker, regulator, market participant, trade body or professional association, would not actively support the committee’s well-considered recommendations and do all they can to introduce all the recommended changes without any delay.
"Any delay will literally cost the pensions-savings public their hard-earned money and further jeopardise the reputational integrity of the pensions sector.”
He adds that forcing pension firms to spell out costs rather than voluntarily disclosing makes complete sense.
“Leaving it to individual companies to decide whether to disclose costs properly or not is as daft as the idea of leaving it entirely to the discretion of car drivers to stick to the speed limits or not. We don’t want carnage on our roads and we don’t want mass pensioner poverty either.”
This article first appeared on our sister website Money Observer