Pension chiefs told to show charges

Herald Series: Pensions minister Steve Webb has already promised a "full frontal assault" on pension scheme charges Pensions minister Steve Webb has already promised a "full frontal assault" on pension scheme charges

The Government is ordering pension fund managers to come clean about hidden costs which can wipe tens of thousands of pounds off the value of retirement pots.

Pensions minister Steve Webb said transparency in workplace defined contribution schemes was crucial so people could make good financial decisions.

The Office of Fair Trading (OFT) warned last year that there was " insufficient visibility and comparability of charges" to ensure that competition in the market was fully effective.

In a written statement to MPs, Mr Webb said in future ministers would be under a statutory obligation to create rules to ensure transaction costs were more open. An amendment will be introduced to the Pensions Bill in the House of Lords on Wednesday.

"Transparency of costs and charges is fundamental for good scheme governance and to enabling comparison between schemes," Mr Webb said.

"Requiring increased transparency is the latest step in the wider Government programme to see fair charges for people who are automatically enrolled into workplace pensions."

The announcement on transparency has apparently been brought forward to avoid a damaging Lords revolt led by former chancellor Lord Lawson.

Speaking during debate on the Pensions Bill last month Lord Lawson said: "I n a competitive market, compulsory disclosure will go a very long way towards removing the mischief."

Mr Webb also insisted he would "see through" proposals for a cap on fund charges - expected to be around 0.75% a year.

"Last year, we consulted on whether to cap charges in the default funds of schemes used for automatic enrolment, and the Government remains committed to seeing this policy through during the life of this Parliament," he said.

Small variations in charges can make huge differences over time to the eventual size of the pension pot that someone ends up with.

The Government has said someone who saves £100 a month over a typical working lifetime of 46 years could lose almost £170,000 from their pension pot with a 1% charge and over £230,000 with a 1.5% charge.

Shadow pensions minister Gregg McClymont said: " 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.

"Ministers are failing to allow savers and employers to get the greatest benefit from the new workplace pensions and the Government's headlong retreat on bringing in a pensions cap has left savers at real risk of rip-off charges. Only Labour is committed to ensuring that auto-enrolment benefits savers and to offering real reform to deliver pensions people can trust.

"With the current cost-of-living crisis, families struggling to save need to know that their pensions are giving them value for money. Yet the Government is letting savers down.

"The damning Office of Fair Trading report into workplace pensions showed that people are being short-changed by this Government when it comes to saving for retirement."

Mr Webb added: "We're taking action to ensure consumers have access to good quality pension schemes so they have the confidence to plan for their futures. For the first time, we are shining a light into the murky corners of the pensions industry to make sure savers know what is happening to their money.

"A lack of transparency around the true costs of trading can prevent schemes from securing value for money for their members. We will outline further details on our proposals shortly."

The executive director of consumer organisation Which?, Richard Lloyd, said: " It's good the Government is cracking down on hidden pensions charges because more transparency is urgently needed to help consumers get better value from their pension.

"However this alone will not be enough to end rip-off schemes as consumers are often automatically enrolled by their employer and are unable to shop around. We also need to see a cap on charges of 0.5%, to cover all new and existing workplace pension schemes, which could save consumers around £4.8 billion just over the next 10 years."

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