Shadow pensions minister Gregg McClymont has backed the conclusions of the Office of Trading in its report into DC pensions schemes by calling for a ban on active member discounts, a crackdown on legacy commission and better disclosure of transaction costs.
Speaking at a Social Market Foundation fringe event on pensions at the Labour party conference in Brighton yesterday, McClymont said the report highlights “significant problems” in the sector and called on the Government to act.
McClymont said the OFT report tallies with Labour party thinking on the sector and the lack of competition is an “arresting conclusion”.
He said: “The OFT has confirmed there are significant problems in the pensions market with not enough competition to deliver value for money.
”We deal with competition by dealing with active member discounts, which the OFT takes a strong line on; getting to a position where all costs and charges are disclosed, I know the OFT calls for all transaction costs to be disclosed alongside the annual management charge and total expenses ratio, which is a significant step forward. The pensions market is no better or worse than any other market but customers are not engaged and informed so you will have, by definition, significant problems and the OFT has shown it to be the case.”
McClymont acknowledged that new schemes generally had lower charges than many legacy schemes but said improvements are not happening quickly enough.
He said: “The Association of British Insurers responds by saying charges are at their lowest ever but if we are comparing it to legacy schemes then it is not comparing it to wonderful products.
”I was shocked to find 18 different charging structures on legacy schemes so it shows things are getting better but are they getting better quick enough compared to the fundamental problems? We are moving in the right direction but not quick enough and we can do some things very quickly to improve matters.”
McClymont also called for better disclosure of transaction costs to show customers the “churn rate” and criticised the Investment Management Association’s draft disclosure document for not including it.
He re-iterated his pledge to introduce force anyone looking for an annuity to use an independent brokerage and shop around. Labour tabled an amendment to the pensions bill earlier this year but it was rejected by the Government.