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Steve Webb summons providers over pension charges

Pensions minister Steve Webb is to hold crunch talks with pension providers following a report that exposed the extent of high charges levied on savings held in old pension schemes.

Yesterday, an audit of legacy defined contribution schemes carried out by a board appointed by the Association of British Insurers found up to £26bn of pension assets are being charged over 1 per cent.

Default auto-enrolment schemes will be subject to a 0.75 per cent charge from April next year. 

Webb says he was “genuinely shocked” by the report’s findings and pledged to push providers into coming up with “big, bold solutions”, the Telegraph reports.

“I read a lot of these sorts of reports and I was genuinely shocked. There were jaw dropping moments reading this report and a lot of this has been hidden,” he says.

“These are the guilty secrets of the pensions industry laid bare. They are finally coming clean about what’s going on.

“I am now saying to the industry, I am going to get them all in, I am going to talk to them all one by one in the New Year and challenge them to come up with big, bold solutions.”

Webb says the law could be changed to move people into schemes with lower charges and hinted the pot-follows-member model could be extended.

“One option would be to expand the scope of that and say, next time you sign up to a new pension that’s shiny, new and cheap, unless you stop us, we will pull across your old expensive, high-cost pension by default,” he says.

He adds one provider says scrapping exit penalities would barely affect its balance sheet but noted for some members higher charges could be paying for valuable guarantees.

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. I’m no fan of pension providers historic charging structures but, this guy will only be happy when he has removed all profit from pensions and when the last real pension provider “turns off the light” on the way out of the pension arena!

    His over simplistic view of the pensions market, is staggering and he will be knighted for his efforts when it goes down the toilet!

    I’m sure he will look to IFA’s to pick up the pieces, when certain providers will opt for his “One option would be to expand the scope of that and say, next time you sign up to a new pension that’s shiny, new and cheap, unless you stop us, we will pull across your old expensive, high-cost pension by default,” he says. and side stepping GAR liabilities in the process! But when was the last time a member of the public phoned an insurance company and asked for a “Shinny” new pension please?

  2. Once Steve Webb sits some pension qualifications, perhaps being summoned might be appropriate. Who does he think he is? The Queen?

  3. Clueless! Is he going to reimburse those moved to “shiney new” pension schemes who lose their GAR?

    The government has messed with pension rules and regulations for 20+ years and now they are complaining that pensions are too complicated. As Snippy mentioned Mr Webb will not be happy until pension providers are just covering their costs and not making a profit.

  4. Does Steve Webb’s definition of “old pension schemes” encompass those sold prior to 1986? The two primary issues here, I think, are:-

    1. Are providers playing fast and loose with woolly contract terms that afford them a free hand to impose whatever charges they like and

    2. are they investing sufficient money in quality fund managers and service/information systems to justify their ongoing charges, as opposed to spending as little as possible so as to maximise their profits at the expense of policyholders?

  5. IFAs represent their clients in the market, not life offices. The FCA were right to challenge exit fees. These fees are meant to compensate life offices for the large commissions they paid to direct sales agents.

  6. Phil, don’t worry the new level 4 pension quidence qualification, will make pension experts of him and his kind!

    It always amazes me that minister can be given these roles without having experience and knowledge

  7. What’s the ‘cost’ of a poor performing With Profits fund with a 11% GAR due in 2 years time? What’s the cost of a ‘traditional’ with profits fund which has a transfer value significantly lower than the guaranteed ‘BSA + Bonuses’ and NRD is closing in? These costs can’t be quantified but if I could still buy the former, I certainly would!

    I agree with much of what Steve Webb has done but this is either going too far beyond simply firing a shot across the bows or it’s painting an overly simplistic picture which, in the real world, is highly unlikely to work.

    Yes, there will be many members of pension schemes paying for something they don’t receive but implying there could be automated transfers on non-QWPS is dangerous!

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