View more on these topics

John Greenwood: DWP is wrong to ignore hidden pension costs

John-Greenwood-MM-Peach-700x450.jpg

There is much to commend in the DWP’s belated focus on charges and commissions in workplace DC pensions. But when it comes to the charges hidden within funds held in pensions, it appears to be ducking the issue altogether.

We need a root-and-branch review of hidden annual management charges – as proposed by Labour last week and promptly rejected by pensions minister Steve Webb and the coalition.

Ironically, on the day Labour’s amendment was rejected, FCA chief executive Martin Wheatley was speaking about £500m a year of investors’ cash spent off balance sheet – that is, outside the AMC – on corporate access.

I do not wish to belittle the DWP’s genuine efforts to improve member outcomes by targeting pension provider charges. But for us not to know what fund managers are charging on the funds held within pension schemes makes a mockery of the very concept of a charge cap.

There are various hidden costs: bundled commissions, or soft dollars, which Wheatley last week flagged up as an area in need of major reform; but also stock lending, interest on cash, spreads and foreign exchange rates within fund managers.

Fund managers have a right to make money but where millions of apathetic consumers are being nudged into their products without a wet signature, we at least need to know what is being charged. When overseas equities are moved from one fund to another in a different currency, we need to know if the exchange rate is any better than you would get at an airport.

The DWP consultation skates over these issues, simply saying maybe we do not want to disclose them to members because it may put them off. The serious point is that we do not have anything to disclose to them because nobody, except the fund managers themselves, knows what these charges are. 

At last month’s Corporate Adviser Summit, Dr Christopher Sier of Stonefish Consulting set out a range of hidden costs in local government pension schemes which he had managed to uncover only because they were public documents.

Many key figures in DC pension consultancy largely agreed with his view that the pensions industry is having the wool pulled over its eyes by the fund management industry. Nest chief investment officer Mark Fawcett admitted he did not know Nest’s process for Forex scrutiny – which is no particular discredit to him, not just because he only has £30m of largely UK-based assets under him at present – and neither did virtually anyone else present.

Corporate Adviser will be publishing guidelines from Nest and Stonefish Consulting on how to quiz fund managers about their under-the-service charges later this week.

These hidden charges are no longer unknown unknowns, as Donald Rumsfeld would have it – they are known unknowns. Unless they become known knowns, accusations of hidden charges will continue to plague pensions as auto-enrolment proceeds.

John Greenwood is editor of Corporate Adviser

Recommended

David-Nish-Standard-Life-700x450.jpg

Standard Life sees auto-enrolment sales boost

Standard Life has seen a 29 per cent increase in new business sales for the first nine months of the year, driven by auto-enrolment and new corporate pension business. The company has posted sales of £14.5bn in UK and Europe on a PVNBP basis for the nine months to 30 September, compared to £11.3bn in […]

3

Ex-PM John Major says BoE should hike interest rates to 5%

Former Prime Minister Sir John Major has called for the Bank of England to increase interest rates to as high as 5 per cent. The Telegraph reports Major discussing the matter with grassroots Conservative members and warning that low interest rates are punishing savers. In June, the Bank warned that a 2 per cent rise […]

Survey cover

EEF/Jelf Employee Benefits Sickness Absence Survey 2015

EEF stated in its 2015 EEF Manifesto that the UK’s growth prospects depend on people being fit, working and productive. Keeping people in work and helping people return to work is very important for the manufacturing sector. It means boosting productivity by getting people back into work as early as is possible, as well as fostering workplace cultures and environments that proactively manage individuals’ health conditions so that all can benefit from lower sickness absence outcomes.

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com