Businesses and their staff need much clearer information about pension fees and charges if upcoming plans to automatically enrol them in a pension are to work, the National Association of Pension Funds (NAPF) said today.
The NAPF warned that unless details on charges were set out in plain English, then many people would have little faith in their new pension, and would simply choose to leave it.
It also said that many employers, particularly smaller firms, will be completely new to pensions and will need simpler information if they are to pick the best value pension for their staff.
Up to ten million people will be affected by Government plans to start automatically enrolling all workers into a workplace pension from next year.
The NAPF believes the current approach to charges is overly complex and makes it difficult for savers to see how much they are paying. Its comments came today as industry leaders, consumer groups, employer bodies and employee groups attended a summit on costs and charges.
The Summit’s aim is to develop an industry code of practice on the transparency of fees and charges, and to make it easier for people to compare pensions. A code could also help wider monitoring and comparison of industry charges in the public interest.
Today’s meeting highlighted the current problems in communicating charges, and started discussions on possible improvements.
Joanne Segars, NAPF Chief Executive, said:
“It was good to get everybody round the table to start tackling this issue. People are worried about pensions and the gobbledegook that often ends up in their annual statements is a huge turn-off.
“The language around pensions has to change. People need information that is useful to them and that they can understand. That means pounds and pence, not a string of basis points and subcharges that would baffle an accountant.
“Greater transparency about charges will empower people to get more engaged with their pensions. And while charges affect the millions who already have a pension, it’s especially important that we do not scare away the pension newbies who get automatically enrolled.
“Many employers will be picking a pension for the first time for their staff, and we have to help them make the right choice. They need to be able to see how pension A compares with pension B, and at the moment it’s not easy enough to do that.”
Pensions Minister Steve Webb MP said:
“I welcome this initiative. Charges can have a significant impact on the size of a retirement pot and it is critical that savers fully understand them. A code of practice has the potential to make real improvements and help people get a better deal. This will be even more important with the introduction of auto-enrolment.”