The Association of British Insurers has sought to tackle the ongoing debate about pension charges by calling for an industry agreed protocol to make charges more transparent, including the disclosure of all transaction costs.
ABI director general Otto Thoresen has written to The Pensions Regulator chief executive Bill Galvin and FSA conduct business unit managing director Martin Wheatley to start developing an initiative to explain charges to those in contract-based and trust-based schemes.
In his letter, Thoresen sets out a four-point plan to improve cost disclosure: simple charges disclosure for employees in contract and trust-based schemes; disclosure of transaction costs such as broking fees; regular communication with employees on charges as their funds build up; and ensuring workplace schemes provide employees with clear and comprehensive charges information.
Thoresen wants a draft disclosure agreement in place by the end of the year.
In the letter Thoresen says: “We hope that achieving complete transparency on charges and costs will ensure the savings debate can move on to the importance of people contributing more to their retirement fund.”
The furore over pension charges began in earnest in July after Labour leader Ed Miliband hit out at the “massive, massive issue” of pension charges and claimed certain funds were charging up to 4 per cent. This was followed by a report from the Royal Society of Arts which criticised insurers for failing to disclose all costs associated with saving in a pension.
The ABI and the Investment Management Association have both come under pressure to ensure transaction costs, including broker fees and Government stamp duty which have been branded “hidden charges”, are disclosed to the end investor.
Wingate Financial Planning director Alistair Cunningham welcomes the ABI’s plan to improve pension charges disclosure and says the debate has wider implications than just cost.
He says: “The pensions industry should push back in the strongest possible terms to show the headline costs of pensions have fallen and continue to fall.
“We also need to recognise the investment management industry as a whole has a poor record on transparency. This will not change without a significant push at the highest level, which will essentially mean RDR 2. Given the time it has taken to get the fairly basic changes of RDR 1, I do not hold out much hope of this happening any time soon.”
Jacksons Wealth Management managing director Pete Matthew says: “Any kind of smoke and mirrors around charges only serves to rouse peoples’ suspicions. I can think of no better way to reinstil consumer trust in financial services than laying all costs on the table.
“Costs have to be explained in terms people understand. People do not mind paying as long as they see value. But if all they have had for 25 years is a mediocre off-the-shelf balanced fund, they will start to question what they are paying for.”