Pension providers are awaiting the outcome of the Investment Management Association’s review of charges disclosure as pressure for increased transparency around the cost of pensions continues to mount.
Labour leader Ed Miliband and fund manager David Pitt-Watson have criticised insurers in recent weeks for failing to disclose all of the costs and charges associated with pension saving.
Money Marketing contacted four of the UK’s biggest insurers – Aegon, Friends Life, Scottish Widows and Standard Life – as well as the Association of British Insurers, to find out what providers do and do not currently disclose and why.
All of the providers made a distinction between “charges”, which help providers turn a profit and are disclosed, and “costs”, which are out of their control and are not disclosed. Costs include dealing costs and Government-imposed stamp duty.
Aegon head of regulatory strategy Steven Cameron says: “The IMA is proposing to ask each fund to disclose things like dealing costs as a percentage of the overall fund value in the yearly report. I think that is a more meaningful way of showing that cost.
“Once the IMA has completed its work, we as providers can start thinking about how these sorts of charges can be shown to customers in a meaningful way. This information could be included in a yearly statement but there would be quite a lot of cost associated with that and you would need to show it in context.”
Scottish Widows head of pensions market development Ian Naismith says: “We disclose all charges. However, there are costs incurred by the managers of investment funds available through our pension plans which are not explicit, including stamp duty. Our view has been that these are incorporated into the investment return and are low in relation to total costs. However, we recognise that the industry needs to consider how they can be disclosed on a consistent basis.”
Standard Life head of workplace strategy Jamie Jenkins says: “Together, the annual management charge and additional expenses form the total expense ratio and this is disclosed at the outset when a member joins a scheme. The only additional charges are those which are purely to cover the costs of managing the fund, such as stamp duty and brokerage fees.
“These are necessary expenses in making trades and are therefore part and parcel of the fund management. The difficulty in disclosing these costs is that they are unknown in advance and depend upon a variety of factors, including market volatility.”
Friends Life head of corporate benefits marketing Martin Palmer says the debate on costs and charges must not focus solely on dealing costs.
He says: “If this happens, there is a risk that it will be seen as better to invest in a fund that has no or little turnover of stocks than a fund where the fund manager is actively managing the fund and ensuring that the stocks are regularly reviewed.”
Pitt-Watson’s report, Seeing Through British Pensions, suggests it would be straightforward for insurers to provide customers with an annual pension statement similar to a bank statement. This is something which already exists in Denmark.
However, the ABI says introducing a similar system in the UK would cost providers money and could ultimately burden consumers.
A spokesman says: “Comparing the UK to the Danish system is an apples and pears comparison as pension saving is compulsory in Denmark.
“It is possible to set out costs and charges in annual statements but this is not easily done and the costs incurred in implementing this would ultimately add to the burden for customers. It is therefore important to consider whether the benefits to customers would justify the costs.”
Naismith says: “While we have previously provided annual statements with a similar layout to bank statements, customer research has found that most people prefer a short summary showing the progress of their pension rather than a breakdown of detailed transactions.
“We can see value in detailing monetary charges in a bank statement style and fund-based charges and costs as a percentage.”