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Govt to force fund managers to disclose all pension charges

The Government is to force fund managers to provide a full breakdown of all charges related to defined contribution workplace pensions.

In a written ministerial statement published this morning, pensions minister Steve Webb confirmed the Government will introduce new measures requiring transaction charges in pension schemes to be disclosed.

Webb said: “I am pleased to announce the Government will be introducing new measures to require transparency for transaction charges in pension schemes. Later today we intend to table an amendment to the Pensions Bill 2013 to introduce this latest step in the Government’s wider plans to ensure consumers receive value for money from their pension savings.

“Transparency of costs and charges is fundamental for good scheme governance and to enabling comparison between schemes.

“Our amendment, which is intended for debate at the report stage of the Pensions Bill 2013 in the House of Lords this Wednesday, will place a duty on the Secretary of State to make regulations requiring greater transparency around the transaction costs incurred by work-based defined contribution schemes.”

Money Marketing revealed earlier this month the Government is considering abandoning plans to cap pension charges until after the May 2015 general election because the reform is “too complicated”.

It is understood the Treasury and the Department for Work and Pensions have clashed over the plans, partly due to disagreement about whether transaction costs should be included in the cap.

On the charge cap, Webb said: “Last year, we consulted on whether to cap charges in the default funds of schemes used for automatic enrolment, and the Government remains committed to seeing this policy through during the life of this Parliament.

“Accordingly, our response to the consultation on charges, and further proposals on quality and transparency in workplace pension schemes, will be published soon.”

Labour shadow pensions minister Gregg McClymont says: “The Government appears to have finally backed down under Labour pressure on transparency over costs and charges, but ministers are only implementing half of Labour’s reform agenda.

“Ministers are failing to allow savers and employers to get the greatest benefit from the new workplace pensions and the Government’s headlong retreat on bringing in a pensions cap has left savers at real risk of rip-off charges.”

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. I do hope in that case they will also disclose how much tax is being swiped and what percentage that is of the total.

    Tax taken from dividends
    Tax Taken as Corporation Tax
    Tax Taken as Income tax from the fund managers
    Tax taken as NI
    Tax taken for Stamp Duty
    Tax taken for VAT
    CGT where relevant.

    That should open a few eyes! When all that is taken into account I’ll be the charges don’t look that awful in most cases.

  2. Harry Katz

    I’m slightly surprised by your comment as I think that you are trying to confuse matters as a suspect you perfectly know that there are hidden charges within pensions particularly dealing costs. I’m all for educating clients on tax that is deducted from their pensions e.g. tax taken from dividends, stamp duty and even some cases VAT.

    But it is wrong to give the impression that other taxes mentioned above are directly linked to performance of the pension fund as some of these are business costs. For example the tax that a Fund Manager pays in respects to his salary, has nothing to do with the pension fund performance itself. This is profit derived from the annual management fee and is part of the overall charging structure.

    We cannot hide charges, we should fully disclosed them to consumers, RDR is forcing advisers to disclose fees upfront by way of fee agreement so why not the same for fund managers. Maybe not by formal fee agreement each fund but a declaration of what dealing charges have been taken in the annual statement.

    I think you’ll find that this is what the government are wanting to show in a full breakdown of costs.

    We advisers should be joining forces with the government to push down fund charges particularly hidden dealing costs.

  3. goodness gracious 24th February 2014 at 10:50 am

    At last! This makes the most sense of any article I have read this year. But why restrict this regieme to default workplace pensions? why not make it compulsary for all funds to disclose in this manner.The main issues are how do you ensure all funds are assessed similarly? If a fund looks at all its annual costs from say July to June and another between January and December, performance can dictate the numbers when expressed as a percentage of average value. So a set term must be manditory.
    In addition there must be some further rules to prevent fund managers manipulating the figures by either not dealing when their dealing cost budget is up, or preventing certain transactional costs to be included just before the cut off date.
    the other issue of unintended consequenses is; will the management reduce potential performance in orded to advertise low costs? As most default AE funds are based on passive funds, it may not be an issue for them, but it may be for all other funds.

  4. I don’t disagree with you on this in principle, but I get very irritated when a Government – any Government gets holier than thou – as they constantly do. It would help if they cleaned up their own act first before pointing fingers.

    As to income tax – for fund managers (and ourselves come to that). Sure this is a cost and it is a driver. Don’t you think that those who got hit for 50% or now even 45% had their salaries hiked to adjust? This is a cost that is ultimately passed on to the customer. Taking it to silly lengths – if fund managers were to pay no tax at all don’t you think that this would be reflected in the bottom line fund management charges? That is the point I was trying to make.

    Sure there should be disclosure, but do we really want this to result in race to the bottom? Will this not just result ion dumbed down funds? Poorer choice and just trackers? The law of unintended consequences could turn out to be most unattractive.

    From personal experience, like my clients I have pensions and investments in collective funds. Over the years these have done well and in truth I have nothing to complain about. This is also the case with my clients over the long term, so although I’m in general agreement with this initiative I can’t really get that worked up about it. It has been bought about, in my view, as a smokescreen for the Governments own failings and disingenuous venality in the pension arena. You may have seen in today’s paper that after 100 years there is at last a move afoot to come clean on NI and change its name to ‘Earnings Tax’ – how one differentiates ‘Earnings’ from Income is only something a politician can dream up, but it will come as a bit of a shock to many who still fondly believe that NI pays for their pension and NHS. So let’s bury that piece of news with some criticism of the pensions industry.

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