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Pensions industry launches joint charges code of conduct

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The pensions industry has unveiled a joint code of conduct for disclosing information to employers over pension charges associated with auto-enrolment.

The move has been spearheaded by the National Association of Pension Funds and Association of British Insurers, supported by the Investment Management Association and the Society of Pension Consultants.

The code has three key elements; a requirement that are all charges are clearly and accurately stated in writing, a standard template summarising the services to be provided and clear examples of the effect of charges on pension pots.

It has been developed by a working group made up of trade, consumer and industry organisations and pension providers. The code states that advisers should use the code as a minimum but may wish to provide additional information about other factors than basic costs to help consumers pick a pension scheme.

Under the code providers or advisers must hand over a four page template letter, clearly setting out the charges and services associated with those charges. As part of the summary advisers must write 200 words explaining to clients what makes them unique and sets them apart from others.

A web-tool is currently being developed by the working group for advisers and employers to use to create examples that clearly demonstrate how charges can affect pension pots. Advisers must use the web-tool with clients to abide by the code.

The new rules will apply to all parties providing services to employers in setting up and administering pension schemes for auto-enrolment, including insurance companies, trust-based pension schemes, financial advisers, and any other professionals offering paid advice.

It will come into effect in two stages. The first stage begins on 1 January 2013 when the code should be used as a guide for best practice.

The second stage starts one month after the launch of the dedicated web tool, which is expected to be available from 1 April 2013 and is being produced by the ABI. During this stage all the provisions of the code will apply.

Pensions minister Steve Webb says the code is a useful “starting point” in improving transparency for auto-enrolment schemes.

He says: “We hope to see the code’s widespread adoption and for individuals to be enrolled into schemes with value for money and transparent charges. However, we are prepared to consider taking action more broadly on charges if insufficient progress is made.”

Shadow Pensions Minister Gregg McClymont says the industry has listened to him and Labour leader Ed Miliband on transparency of costs and charges.

He says: “The revised code represents a significant step forward – albeit with room for further improvement. But there is a long way to go on reform of occupational pensions and we want to see critical developments, including on scale and governance to ensure that people get pensions they can trust.”

NAPF chief executive Joanne Segars says: “Employers need to be able to see more clearly what is being charged and why. They will then be more likely to pick the best pension for their staff.

“The code sets out a template for explaining charges that will make it easier to compare the cost of pension A with pension B.”

Hargreaves Lansdown head of pensions research Tom McPhail says the code is a “creditable” attempt to balance transparency of charges with recognising the value of services.

He says: “The code will have the effect of maintaining downward pressure on default fund investment charges. It excludes portfolio transaction costs which may be regarded as an oversight by some, nevertheless it is a step forward.

“It also stops short of introducing a single APR type charge number but this is understandable given the complexity of services and charges involved in providing workplace pensions.”


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