Industry experts believe Britain is sleepwalking into a pension crisis and this article explains one of the reasons why.
Pension companies have finally agreed to come clean about hidden charges and fees, as the industry admits that it has not given “straight answers” to savers. Millions of people saving into private pension pots are routinely hit by hidden levies, which typically wipe more than £100,000 from the value of a middle-class worker’s pension.
The head of the Association of British Insurers (ABI), which represents pension companies and fund managers, has written to The Pensions Regulator and the Financial Services Authority (FSA) pledging to put in place a new set of rules that will tell savers exactly how much they are being charged on an annual basis. The rules will be agreed by the end of the year and implemented in 2013. The move comes after Steve Webb, the Pensions Minister, announced a crackdown on hidden fees as trust in the pensions industry hits an all-time low. The Daily Telegraph has previously disclosed how a range of little-known fees and levies can decimate the value of a worker’s private pension.
Otto Thoresen, the ABI’s director general, admitted that pensions companies have not been transparent enough about their fees. “The industry has taken too long to recognise the fact that people expect transparency now. They expect to ask a question and get a straight answer. We haven’t been very good at giving that straight answer,” said Mr Thoresen. He has written to Bill Galvin, the chief executive of The Pensions Regulator, and Martin Wheatley, the head of the FSA’s Conduct Business Unit, pledging a “commitment to transparency”.
Under the proposals, savers will be told in a “consistent and simple” way how much a pension company takes from them as an annual management fee. This administrative fee is taken yearly as a percentage of a person’s pension pot. Companies will also have to disclose controversial ‘transaction fees’. These are the fees covering stamp duty when a fund manager uses a pension pot to buy or sell shares. Transaction fees, which also include commissions paid to City brokers, are currently not disclosed to savers unless they ask for them. It is likely that all the charges will be set out to savers in an annual statement.
Mr Thoresen said that the new rules will strive for “consistency” across the industry to allow people to compare different pension providers and see whether they are getting “value for money”. He said that it is important to improve confidence in pensions before so-called auto-enrolment into workplace pensions starts for up to 10 million people in the autumn. The issue of charges is increasingly important for millions of workers who now have to make their own pension provision. The number of people contributing to personal pensions fell by 400,000 to six million people between 2008 and 2010. Britain is “sleepwalking into a pensions crisis”, experts believe, and the Government believes that mistrust in the pensions industry is partly to blame for low levels of saving.
A spokesman for the Department for Work and Pensions (DWP) welcomed the ABI’s move. “DWP is watching the issue of charges very closely. We are determined to make sure every pound that savers put aside is turned into the maximum possible amount of pension,” the spokesman said. Darren Philp, director of policy at the National Association of Pension Funds, a second large industry body, said: “Fears about charges are putting people off pensions, and the industry must address that by being more upfront about its fees.
“We have been concerned about charges for a long time, which is why last year we kick-started work on an industry code to give better information to employers.” The NAPF is working on a separate code of conduct around pension fees. Mr Galvin of The Pensions Regulator said: “Action by the industry now, ahead of the main wave of auto-enrolment, is both timely and appropriate.”
A study released earlier this summer revealed that millions of savers are being misled by City fund managers about hidden fees that can almost halve the value of their pensions. Nine in ten of the country’s fund managers fail to warn people about the levies, which typically wipe more than £100,000 from the value of a middle-class worker’s pension. The report by RSA, a think tank, found that 21 of the 23 pension funds it surveyed failed to inform people about the charges.
David Pitt Watson, one of the biggest company pension fund managers and the author of the report, said the scale of the hidden levies was “extraordinary”. “For markets to work effectively, consumers need to know what they are buying,” he said. “It is extraordinary that, after so many years, such a system is not in place in this country. It is vital that people have access to straightforward, accurate, high-quality information.” The report said pension charges accounted for up to 40 per cent of typical retirement savings.
Original Article : Telegraph
By James Hall, Consumer Affairs Editor