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NAPF: Why Lawson is wrong about pension charges code

Yesterday, Standard Life head of pensions policy listed 10 reasons why the National Association of Pension Fund’s proposed charges code of conduct will not work. Here, NAPF policy adviser Catherine Cunningham (pictured) responds.

It would be easy to counter this with a list of a hundred reasons why a code is both workable and necessary. But we’ll stick to the main points.

Charges are a worry for employers and consumers, and are a big reason why people are turning their backs on pensions. Saying that it’s all too difficult to explain will not make that issue go away.

Auto-enrolment will bring millions of savers into pensions, and many, many employers will face pensions for the first time. People want to know about charges. Indeed, A DWP study found that employers expect to research and compare pensions to find the best deal.

John says providers can ignore a code, and that employers simply don’t need to know about charges. We disagree and, what’s more, comments like this lay the industry wide open to criticism about transparency and fairness which a code could help dispel.

Where we do agree is that it is difficult to find a common currency to compare charges. But things are at an early stage and that’s why the consultation is asking for industry input.

At least it’s encouraging to see John go on to say he would like to see a single, user-friendly illustration of charges. It’s one of the code’s key features.

Finally, the work around the code does not belong to the NAPF. Fourteen organisations are on the working group, including insurers, industry bodies and potential customers.

It is difficult, and there are some highly technical issues which need to be resolved over the coming weeks and months. The code will be successful if we as a pensions industry want it to be.


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. Dear NAPF,
    If you re-read what I wrote you will find that far from shying away from transparency, I am actually suggesting that the very accurate and transparent charge disclosure that the insurance industry already embraces is improved. KFIs are member specific, contribution specific and fund specific, meaning that the quality of transparency that already exists far exceeds what you are proposing. It is difficult and expensive to produce these illustrations but insurers have invested in the necessary systems and processes to do so.

    I just can’t understand why you would propose a new form of disclosure which is inferior to that which already exists and that is virtually useless to employers?

    Of course, NAPF may not be aware of existing accurate and transparent charge disclosure because super trusts (or any trust scheme) are not required to produce KFIs for their members, although Standard Life already sends these out for each and every member of our contract-based GPPs and GSIPPs and our trust-based mastertrust and individual trust.

    Employees in the UK already enjoy some of the lowest charges anywhere in the world. There are schemes being written today in the UK at 20bps – less than half the price that Nest charges and less than the Danes, the Swedes, the Dutch and the Australians pay for their pensions.

    Most employers are not interested in negotiating charges – they employ advisers to do that for them (and, from experience, I can report that advisers do a sterling job!). For those employers that are interested in charges, they already have access to extremely accurate charge disclosure at individual member level. I am sure that if an employer asked for KFIs for average earning employees or for the average of discreet groups within the workplace, any insurer would be happy to provide these. Such illustrations would be far more relevant and useful to an employer in comparing one provider with another rather than your proposal of an artificial 8% of band earnings for a UK median earner investing in the default fund only, which as I pointed out is not representative of very many workforces in the UK.

    Countless surveys of employees suggest that the main reason they don’t save in pensions is, unsurprisingly, affordability. I’d be really interested in seeing your evidence that proves that charges are a ‘big reason’ why people don’t save in pensions, because that runs counter to all the evidence I have seen.

    NAPF wants to add further inferior disclosure at huge expense – this expense will simply result in pension scheme members paying more for their pension. Why do we need another form of voluntary charge disclosure when we already have more accurate compulsory charge disclosure? Do you really want scheme members to pay more for their pensions in order to provide employers with a useless piece of paper?

    So, just to make it crystal clear, I am not against transparency and, as it happens, transparency already exists today in a much more accurate form.

    Moving now to ignoring a code. Again, if you re-read what I wrote you will see that I did not say that providers could ignore a code. It could be anyone that ignores a code, and I am sure some NAPF members will be amongst the first do this if they conclude that such a code is another piece of unnecessary bureaucracy.

    We already have a single illustration of charges – the KFI. All we need to do is make that user-friendly and encourage super trusts and third-party administrators (unbundled schemes) to adopt it, then members of all schemes would get accurate charge disclosure rather than just the members of schemes run by insurers, as is the case at the moment.

    Let’s get the DWP and FSA together to harmonise KFIs and SMPIs (they were supposed to be planning to do this anyway) and allow the industry to develop these into a customer-friendly format. Then we can all get on with something that is far more important than charges – encouraging people to save more money into their pension.

  2. They talk about the North/South divide!
    I think that John is right on the money.
    How can the NAPF, who are used to regulating super trusts and large employer schemes have any understanding of what my local engineering company employing 50 people is thinking! It will not be the diiffence in charges that perplexes them when their staging date arrives. They will be concerned about how they can afford to set up a scheme that both they and their employees can understand and get advice on how to use. They will be concerned with the (37, I believe it is now John) different senarios in which auto enrolment will place their workforce and need to report back to TPR on! NAPF,…get real and then maybe you will get support for your proposals from the 1,200,000 employers (Steve Bee’s latest estimate) who are due to set up their first pension scheme over the next 5 years!

  3. “Charges are a worry for employers and consumers, and are a big reason why people are turning their backs on pensions. Total rubbish – the barrier is the cost of building decent level of benefits and no 1% charge is holding that back. The hard fact is that NAPF is like a minister without portfolio. Where were they when state scheme offset ripped off the lower paid short service members. Where were they when DB was replaced by DC and only 3% paid by employers?

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