Fund managers from across the UK’s pension industry will be forced to reveal any and all hidden costs associated with their pension schemes in the face of new legislation.
These costs regularly wipe thousands of pounds off a worker’s pension, and The Times states the new Government rules will ensure defined contribution workplace scheme fund managers must fully disclose cost details to the public.
A spokesman for the Department for Work and Pensions stated: “We’re taking action to ensure consumers have access to good quality pension schemes so they have the confidence to plan for their futures.”
“A lack of transparency around the true cost of schemes can prevent savers from having value for money,” they continued.
“We will outline our proposals to tackle this issue shortly.”
Prior report
Last year the Office of Fair Trading (OFT) warned there was “insufficient visibility and comparability of charges” of pensions schemes.
This lead to a conclusion that market competition could not be fully effective, and that is was too difficult for customers to “see through” the jargon and assess the charges.
According to The Times the announcement of the new legislation had been brought forward to counter a predicted Lords revolt led by Lord Lawson.
Speaking last month, former chancellor Lawson noted: “In a competitive market, compulsory disclosure will go a very long way towards removing the mischief.”
Fund charges
Pensions Minister Steve Webb has stated pension schemes will face a complete review and potential overhaul – with talks currently underway proposing a cap on fund charges of 0.75% a year.
He stated the Government was now beginning to shine a light “into the murky corners of the industry” by creating legislation which means stealth ‘fund charges’ which damage an individual’s pension must be openly stated.
Small percentage point differences on fund charges can make huge differences to a person’s pension – and therefore their comfort in later life.
The Government has stated that a typical worker contributing around GBP 100 a month into their pension over the typical working lifetime of 46 years would lose around GBP 170,000 from their pot if suffering a 1% fund charge.
If the fund charge was set at 1.5%, a worker would lose over GBP 230,000.
Gregg McClymont, Labour’s shadow pensions minister, noted: “The Government appears to have finally backed down under Labour pressure on transparency over costs and charges, but ministers are only implementing half of Labour’s reform agenda.”
About John Cassidy
