ABI Announces Action Plan On Clearer Pension Charges And Costs
The Association of British Insurers has set out an action plan for clearer pension charges and costs in a letter to regulators today. The move is designed to improve transparency across the whole of the pensions industry and raise consumer confidence ahead of the introduction of auto-enrolment into workplace pension schemes this autumn.
The joint letter to the Pensions Regulator and the Financial Conduct Unit of the FSA sets out clear priorities for action towards developing an industry protocol by the end of the year that will ensure:
- A consistent and simple disclosure of charges to employees across contract and trust-based pension schemes. (These terms are explained below).
- Transaction costs, such as broking fees, are made available to employees in all contract and trust-based schemes.
- All employees receive regular, clear and meaningful information on charges and transaction costs as their funds build up.
- Existing workplace pension schemes to ensure that employees are provided with clear and comprehensive information on their charges.
At the moment, workplace contract-based defined contribution schemes, typically personal pension and stakeholder pension schemes bought from insurance companies, disclose the charge for the scheme to both employers and employees. Any transaction costs that result from the trading necessary to invest the scheme are not disclosed. Workplace defined contribution schemes that are set up under trust ('trust based schemes') do not disclose either the charges or the transaction costs.
Where disclosure does take place, the way in which this is done is currently inconsistent which is why developing a consistent regime is so important so customers can make genuine comparisons between the charges and costs they are being presented with.
Otto Thoresen, ABI Director General, said:
"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."