The Association of British Insurers has responded to demands for greater transparency over costs in pensions by setting out an action plan for clearer pension charges in a letter to regulators. The ABI says the move is designed to raise consumer confidence ahead of the introduction of auto-enrolment this autumn.
The joint letter to the Pensions Regulator and the Financial Conduct Unit of the FSA calls for an industry protocol on costs and charges to be developed by the end of the year. The ABI wants to see a consistent and simple disclosure of charges to employees across contract and trust-based pension schemes, transaction costs, such as broking fees, are made available to employees in all contract and trust-based schemes and regular, clear and meaningful information on charges and transaction costs to employees as their funds build up.
Otto Thoresen, director general of the ABI says: “While charges for contract-based pensions have reduced dramatically in recent years, we must ensure that, across all types of defined contribution pensions, information on charges and costs is available, clear and meaningful, and helps employees make the right decisions about their pension.
“Auto-enrolment will have a critical impact on the future retirement prospects of today’s workers. If we are to minimise opt-outs it will be vital that employees understand what they are paying and have confidence in the pensions they are being auto-enrolled into.
“Both parts of the pensions world need to go further to ensure all workplace savers have the information they need to make the best choices for their future. For too long, different parts of the private pensions system, regulated by two different regulators, have given employees too little information about what they are paying. Openness and transparency are now expected by customers, so we all have to do better. I have written to the Pensions Regulator and FSA to set out what I believe we can achieve together.”
Darren Philp, director of policy, NAPF, says: “Fears about charges are putting people off pensions, and the industry must address that by being more upfront about its fees. Communication needs to become simpler and more transparent across the pensions landscape. Savers must not be overloaded with unfathomable small print.
“New rules could see up to 8m people automatically enrolled into a pension, many for the first time. If they’re to stick with that pension then they must be able to gauge whether they’re getting a good deal.
“We have been concerned about charges for a long time, which is why last year we kick-started work on an industry code to give better information to employers. When auto-enrolment starts, that code will help businesses pick the right pension for their staff.
“This call to improve transparency for employees is a welcome next step and could help build on the charges work already being done by the industry. It’s vital that all groups are involved – consumers and employees must not be left out, particularly as this work is aimed at them.
“The current regulatory system causes confusion, and having two regulators for workplace pensions does not help. Ultimately the goal is a clear and stable environment that delivers the best pensions possible.”
Jim Bligh, CBI head of pensions policy, says: “The ABI’s action on charges should help savers to understand how much they are being charged and why, which in turn shows people that it pays to save.”