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November 28, 2012 12:01 am
Charges levied on millions of workplace pension savers will be clearer from next year as the industry bows to political pressure over fees that can significantly reduce retirement pots.
A new industry code of conduct on charges launched this week will set the ground for more consistent disclosure of fees and investment costs for employers choosing workplace pensions for their staff.
Currently, it can be difficult for employers to compare pension schemes costs because of inconsistencies in the rules on how they should be informed.
But with an estimated 11m workers to be automatically enrolled in workplace schemes over the next five years, the government is keen to ensure new savers get a better deal for their savings..
The voluntary code, which comes into effect in April, stipulates all charges for defined contribution schemes should be clearly and accurately stated in writing, and that employers receive a standard template summarising costs.
It also says employers must be able to see examples of how different charges could affect the pension pots of their employees, either in a hard copy or online.
“Employers need to be able to see more clearly what is being charged and why,” said Joanne Segars, chief executive of the National Association of Pension Funds, which launched the code.
“They will then be more likely to pick the best pension for their staff.”
The new format will include average transaction costs incurred by the fund over the last three years which includes the effect of portfolio turnover will now make it possible to compare the transaction costs as well as the charges incurred by pensions.
However, the code does not yet provide for a “single overall” comparison figure. While the code most but transaction costs to be disclosed, there are no current requirements to disclose stock-lending fees or interest on cash balances.
“The revised code represents a significant step forward – albeit with room for further improvement,” said Gregg McClymont, Labour’s shadow pensions minister.
Listen to Josephine Cumbo talk about workplace pension schemes on the FT Money Show podcast
The Code was developed over a 12 month period by a working part of trade, consumer and industry organisations, and pension providers.
It is endorsed by the National Association of Pension Funds (NAPF) and the Association of British Insurers (ABI), in association with the Investment Management Association (IMA) and the Society of Pension Consultants (SPC).
It applies to all those involve din workplace pensions including insurance companies, trust-based pension schemes, financial advisers, and any other professionals offering paid advice.
“The new code will allow employers to make a better choice of pension scheme by providing them with clear and consistent information on charges, costs and services,” said Steve Gay, director of life, savings & protection at the ABI.
“Pension charges have reduced dramatically in recent years but we need to ensure that information is freely available to employers in a format that is concise and meaningful, and helps them to make the right decisions.”
The code comes after threats by Steve Webb, the pensions minister, to cap fees – even small variations in charges can make a big difference to the pensions people receive.
Figures from the Department for Work and Pensions last week said an annual management charge (AMC) of 1.5 per cent reduced a final pension pot by 22 per cent, whereas an AMC of 0.5 per cent reduced the pot by 9 per cent.
“Given the pensions minister’s repeated warnings about capping pension charges, this code may be seen as an attempt at self-regulation as a better alternative to statutory intervention,” said Tom McPhail, head of pensions research at Hargreaves Lansdown, an financial advice company.
On Tuesday, Mr Webb also threatened to ban experts from charging fees for their advice – consultancy charges – to auto-enrolled workers if they did not offer value for money.
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