The group is developing an industry-wide Code which ensures all charges on ‘defined contribution’ pensions are clearly and accurately stated in writing before an employer picks a pension scheme.
The new Code could help employers who are new to pensions to secure the best deal when they start complying with rules to automatically enrol their staff into a pension.
Today the group, which was formed by the National Association of Pension Funds (NAPF), launched a public consultation seeking views on the parameters of the Code. Feedback will help generate the final Code of Conduct, to be launched in late summer.
There are currently big gaps in regulation and practice which make it difficult for employers to compare charges between pension schemes and to assess value for money.
Joanne Segars, Chief Executive of the NAPF, said:
“We need to boost faith in pensions, but charges are a big concern for many people and often the information on offer is unclear. People need to see what is being charged and why, and in a language they understand. This Code could really flush out the detail on charges by making sure that the fine print gets magnified.
“Auto-enrolment is just around the corner and many businesses will be looking at pensions for the first time. This Code will help employers make the right pension choice for their staff. Greater clarity will make it much more likely people will stick with their new workplace pension if their employer has banked them the best deal possible.”
The working group that launched the consultation is made up of employer representatives, pension industry leaders, union and consumer groups, major employers, and pension providers.
Steve Gay, Director of Life, Savings and Protection at the ABI (Association of British Insurers), said:
“We are a nation of under-savers and this must change. We must do more to help people understand the importance of financial planning to secure a decent income in later life. Making pension charges more transparent is a building block in helping customers make the right decisions about their future.
“Employers choosing a pension for the first time need support and guidance to understand the impact of charges on their employees’ pension pots, especially where they don’t have professional advice. A Code could help to achieve this. This consultation will help us test the practicability of the proposals with our members and employers.”
Jamie Fiveash, Director of Customer Solutions at B&CE, said:
“Charges across pension schemes are horrendously complicated and diverse. There’re no consistent regulations which govern annual management charges (AMCs), which are often quoted as the scheme or sole charge, but can just be the tip of the iceberg in terms of total charges suffered. Schemes having a mixture of percentage AMCs, initial charges and flat rate administration charges means it’s extremely difficult for consumers to make comparisons and understand what they’re being charged. B&CE fully supports the new code that aims to ensure consistency of disclosure and communication, to aid employers with comparison and increase consumer confidence in pensions at this critical time with auto-enrolment on the horizon.”
Pierre Williams, spokesman for the FSB (Federation of Small Businesses) said:
“Confidence in private sector pensions has plummeted in recent years despite the growing need for all of us to save more for retirement. A great deal of that loss of confidence stems from the often opaque charges levied on pension holders. Ensuring these charges are not only fair and reasonable but also clearly defined in plain English, is vital to restore lost confidence.”
Jonathan Lipkin, Head of Research and Pensions at the IMA (Investment Management Association) said:
“We’re pleased that the different parts of the pensions industry have come together to discuss how to help employers understand the nature of the scheme choices available, and the associated costs. Charges are of considerable importance, but so too is the nature of what is on offer for any given price. Employers need to feel confident that they have secured the best overall scheme arrangement for their employees. Once finalised, we hope that this Code will facilitate the process.”
Helen Dean, Managing Director, Scheme Development at NEST said:
“NEST welcomes and supports the aims of the consultation into pension charges.
“Pension charges should be transparent and explained in ways that both employers and consumers can understand. It is important to employers that their workers can understand what they’re being charged, why, and the potential impact on their final pot, particularly when these workers are being automatically enrolled.
“It should be easy for consumers, and their employers, to compare the charges of different schemes.”
Brendan Barber, General Secretary of the TUC, said:
“This is an important contribution to opening up the mysterious world of pensions charging. Selling pensions to employers for auto-enrolment is about the only unregulated pension sale allowed, and anything that can help employees and employers work out whether they are getting a good deal is a step forward.”
Richard Lloyd, Executive Director of Which?, said:
“All automatic enrolment pension schemes must offer good value for money. It is important that employers can compare like with like and be able to easily identify the best value scheme for their employees.
“Alongside greater transparency, we want clearly defined minimum standards to protect consumers from being automatically enrolled into poor value schemes.”
Current regulation requires contract-based defined contribution pension schemes to offer information to members about charges, but the same requirements do not apply at the point employers pick pension schemes for their employees.