4th March 2016
A plan to make pension charges more transparent and stop consumers losing out has been drawn up by the Financial Services Consumer Panel.
The panel has called for a new standard of cost reporting that would give pension fund costs greater transparency.
Costs deducted from a pension fund have a ‘significant impact on the amount an individual can build up and consequently on the retirement income they can draw’, said the panel.
However, research by the panel in 2014 showed that those costs are ‘simply not known’.
Under the new standards, pension funds would need to make available the underlying asset management and other provider costs. The panel argued that this would provide trustees and independent governance committees, which are responsible for assessing value for money for members when picking workplace pensions scheme, with a clearer sight of the charges.
The standard is based on research undertaken by Dr Christopher Sier that showed one of the 89 Local Government Pension Scheme (LGPS) funds, after chasing all outstanding invoices, found that reported costs rose from 0.1% to 0.92%.
The panel said ‘actual costs to the LGPS fund did not rise, merely the way they were reported’ but surfacing the costs in this way enabled the scheme governors to negotiate with suppliers and achieve a reduction in costs of approximately 0.1%.
The panel said it was ‘now imperative that those governing pension scheme shave clearer sight of the charges they are paying to give them a basis for negotiating savings for their members’.
It added: ‘The panel therefore proposes that the Financial Conduct Authority, the Department for Work and Pensions, and The Pensions Regulator, along with the relevant professional and trade bodies, define and implement a new standard for data collection of costs and charges on UK pension funds.’
Sue Lewis, Financial Services Consumer Panel chair said: ‘The problems of cost opacity and conflicts of interest in asset management are well known and long-standing. We are always being told there is a solution just round the corner, whether it is European legislation or the work DWP and the FCA have done on transaction charges.
‘While the direction of travel is welcome, millions of pension savers are still losing out year after year by paying too much in unseen costs and charges. We are recommending a small step that could be implemented quickly and make a big difference to tomorrow’s pensioners, without prejudicing more far reaching change to come.’