Government “complacent” about cost transparency failings in pensions industry

Work and Pensions Committee publishes report on pension costs and transparency

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Monday, August 5, 2019

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In its latest major report on the functioning of the UK pensions industry, published today, Monday 5 August 2019, the Work and Pensions Committee says it is unconvinced that the industry will rise to the challenge of providing clear, transparent information to pension schemes about the costs and charges of investments.
It says Government and regulators should not wait for the industry to fail to act voluntarily as they have so many times in the past, and should instead move now to legislate for mandatory disclosure to a set format, for both defined contribution and defined benefit schemes.
Better scrutiny of value for money in defined benefit schemes will also either justify or avoid the need for the often difficult decisions being taken about the future of those schemes.

Rt Hon Frank Field MP, Chair of the Committee, said: Ripping off pension savers could be eliminated.
Government and regulators should not wait for the industry to fail to act voluntarily as they have so many times in the past.
It must put the full force of the law behind such changes.

The FCA should explore the creation of a public register of asset managers record of compliance with reasonable data requests.
But not all charges are covered by the cap, and the full extent of charges outside the cap is not known.
The permitted combination of a flat fee plus a percentage of funds under management charge has the potential to completely erode small dormant investment pots.
DWP should review the level and scope of the charge cap, as well as permitted charging structures, in 2020.
The review should consider preventing flat fee charging structures being applied to dormant pension pots and revisit measures to proactively consolidate smaller pots.
The Committee says that contrary to the two responsible ministers complacent assessments in evidence, it is unconvinced that any part of the industry scores above half marks on transparency.

The FCA should review whether it dedicates sufficient resource to combat active pension scams, prevent new pension scams and protect individuals: Scams are not a necessary consequence of the pension freedoms.
This database should be regularly updated by the range of governmental organisations involved in pension scams and act as a co-ordinated early warning system.
People who are not able to access good advice need guidance and effective protection from pension scams, which can have life changing impacts.
Scams not only harm the individual but cause wider damage to the industry by discouraging potential savers.

A non-commercial pensions dashboard will be a welcome, if overdue, additional tool to provide transparency to individuals and help them plan how they use their pension funds.
For a pensions dashboard to be launched in a timely manner, it will necessarily be limited at the outset.
This should include key milestones, such as the date for pension providers to include their data on the pensions dashboard, as well as target timescales for phases beyond the initial launchfor example, longer term plans to enable consumers to make value for money comparisons through the pensions dashboard.
The pensions dashboard should also feature retirement income targets to ensure the information is meaningful to its users.

Government should urgently resolve the discrepancy between net pay and relief at source tax relief that, over a lifetime of pension saving, will make a significant difference to many people and a represent a significant proportion of their pension savings built up through automatic enrolment.
The Government says that it would cost too much to put this right.
In doing so, it risks damaging faith in the system, by perpetuating arrangements which cause individuals to lose significant sums through decisions they did not make.

In 2017, in its major report on Pensions Freedoms, the Committee called for a 0.75% charge cap on investment pathways.
These must not become a substitute for guidance, which is still required to help individuals determine which product is right for them.
It is not clear how, under the proposed investment pathways, an individual who states that they plan to use their money to set up a guaranteed income is supported to do so without guidance.
Many people who have passively built up retirement savings through automatic enrolment would likely need support through advice or guidance if they wanted to make an informed choice on purchasing a product which provides a guaranteed income.