Ed Miliband was rightly given a hard time by the industry and the media for his ill-informed, broad-brush attack on “pension rip-offs”.
Money Marketing editor Paul McMillan’s analysis picked apart the Labour leader’s headline-grabbing speech on charges, while MM’s front page carried the story of pensions minister Steve Webb accusing the opposition of attempting to “stir up cheap headlines”.
The language used by Miliband was lurid and unnecessary – but his party has identified two critical areas which the industry would be foolish to dismiss.
The first is the disclosure of the charges customers pay on their pension pot.
On the back of some of the “cheap headlines” referred to by Webb, I have spent the past two weeks quizzing the UK’s biggest providers in an attempt to write something slightly less hysterical about pension charges. The results will be published in next week’s Money Marketing.
However, the response of the Association of British Insurers – the representative trade body for the entire insurance industry – to what is supposed to be a constructive article disentangling charges fact from fiction has been worrying.
I asked the ABI: ‘Which charges that impact on the final value of an individual’s pension fund do ABI members disclose? And which do they not disclose?’
I thought this was a simple question – apparently not. Firstly, the ABI referred me to the FSA’s “point of sale” disclosure requirements (despite the fact I had never restricted the question to “point of sale”).
“This makes it clear that dealing costs must not be disclosed”, the ABI says. This is true in the specific case of information given to the customer when a product is sold – because nobody knows what dealing costs will be in the future – but in response to the question I asked it felt like deliberate obfuscation.
So what about the potential of offering clients the ability to see all charges on annual statements then? The second part of the ABI’s response was even worse.
It says: “Annual statements sent to customers are not governed by FSA regulation, but by DWP legislation…They contain no detailed requirements about disclosing charges and expenses.”
This is, quite frankly, ridiculous and suggests the ABI has completely misread the tone of the debate. Insurers should be looking to do right by their customers, regardless of whether or not it is required by the Government or the FSA.
The problem isn’t that charges are necessarily high – it is that they are not easily visible. And as long as they are not easily visible, people like Miliband and Pitt-Watson will continue to feed newspapers “rip off pensions” headlines. This needs to become a priority for the ABI, now.
The second point, on exit fees and high charges on old pension policies, is more difficult to solve. It is widely accepted that pension companies sold products that were poor value in the 1980s and early-1990s.
In response to this, Labour – and others – want providers to look into their back-book and root out plans with unfair charges.
But why would providers do this? As Ned Cazalet points out in this week’s Money Marketing, doing so could cost the industry billions of pounds. Are companies which are ultimately responsible to shareholders – rather than customers – really going to voluntarily give up huge sums of fees?
As a result, this part of the debate is likely to fizzle out. I hope I am wrong – and the ABI is trying to work out the scale of the problem at the moment – but I suspect the suggestion of handing back money to policyholders because Steve Webb says you should will sink like a stone at most product provider board meetings.
Tom Selby is pensions reporter at Money Marketing – follow him on twitter here