The Association of British Insurers has outlined a four-point plan to the FSA and The Pensions Regulator to make pension charges more transparent, including the disclosure of all transaction costs.
ABI director general Otto Thoresen has written to TPR chief executive Bill Galvin and FSA conduct business unit managing director Martin Wheatley to begin the process of developing an industry agreed initiative to explain charges to those in contract-based and trust-based schemes.
Thoresen want to see charges disclosed in a consistent and simple way to employees across contract and trust-based schemes.
He has also called for employees to be made aware of transaction costs such as broking fees, and for providers to regularly communicate with employees about charges and transaction costs as employees’ funds build up. The IMA and ABI have both come under pressure this year to ensure transaction costs, including broker fees and Government stamp duty which have been branded “hidden charges”, are disclosed to the end investor.
Finally, Thoresen proposes that existing workplace pension schemes should ensure employees are provided with clear and comprehensive information about charges.
The aim is to agree a draft disclosure protocol by the end of the year, which would sit along the National Association of Pension Fund’s work on disclosure of charges to employers.
In the letter Thoresen says: “There has been a great deal of debate recently about the transparency of pension charges and costs. This is understandable considering automatic enrolment is currently being implemented, bringing millions of new savers into pensions for the first time, and it is right there should be scrutiny of the costs alongside the value provided by retirement savings schemes.”
He says although charges for contract-based schemes have “reduced dramatically” over recent years, there is a need to ensure employees have the information they need to make good decisions and ensure a consistent disclosure regime for all types of defined contribution pension.
Thoresen adds: “It is critical the broader debate does not lose sight of what matters most. What makes most difference to people’s retirement income is how much they save, and how long for.
“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.”
Investment Management Association associate director of pension and research Jonathan Lipkin says: “As the IMA’s work on enhanced disclosure of costs and charges shows, we agree transaction cost information should be more accessible and are committed to achieving this goal. This will take the UK funds industry well beyond existing EU requirements and could be adopted for DC pension schemes.
“With automatic enrolment looming the pensions industry has both the opportunity and the responsibility to improve disclosure. As part of this, asset managers are already in a position to provide consistent information about the products for which they are responsible. Collectively, we should work to ensure all information for pension savers is meaningful, transparent and consistent.”
TPR chief executive Bill Galvin says: “Last summer The Pensions Regulator called upon the pensions industry to improve the transparency and comparability of pension charges. We are very pleased the ABI has proposed this action plan and we welcome the opportunity to engage with them, as we have other industry groups such as the NAPF. Action by the industry now, ahead of the main wave of auto-enrolment, is both timely and appropriate.”
An FSA spokesman says: “We welcome the ABI’s proposals and look forward to working with them. Any industry-led solutions that help clarify the cost of investing for consumers are a positive move.”