MPS demand transparency about costs of pensions
Parts of the pension industry are making a “fat living” from the hard-earned savings of consumers and their charges should come under tougher scrutiny, MPS have urged.
The Work and Pensions Committee said it is “unconvinced” that the industry will rise to the challenge of providing clear, transparent information about the costs and charges of investments.
Funds should be obliged to show costs in a uniform template, with mandatory disclosure in a set format for both defined contribution (DC) and defined benefit schemes (DB), it said.
Better scrutiny of value for money in DB schemes will also either justify or avoid the need for the often difficult decisions being taken about the future of those schemes, the committee argued.
Frank Field, chairman of the committee, said: “Ripping off pension savers could be eliminated. The select committee is calling on the government to shine the searchlights into that part of the financial industry that has settled down to misinforming, mischarging, overcharging and making a fat living off the hard-earned savings of pensioners.
“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 committee said its previous report on the British Steel Pension scheme found scheme members were “shamelessly bamboozled” by advisers and the unregulated introducers who set up the appointments, into signing up to ongoing adviser fees and unsuitable pension products and investments, characterised by high investment risk, high management charges and punitive exit fees.
It said: “These developments have intensified concerns about the effect of investment management charges, transaction, advisory and other intermediation costs, in eroding the value of individuals’ savings.
“These are part of broader concerns that low levels of customerengagementandunderstanding, coupled with costly and opaque intermediation, risk leading to poor outcomes for pensioners.”
The committee said it is important for trustees and others managing pension schemes to demonstrate whether or not they are delivering value for money in a way whichcanbecomparedacross the industry and is accessible to the scheme members. Its inquiry found “worrying evidence” that some trustees are making investment decisions without a clear understanding of the costs.
The committee said: “It is near impossible for investors to figure out how much their investments are costing them because additional costs are hidden and too high”. It said the Department for Work and Pensions (DWP) should review charging structures in 2020.
The committee said that with the latest reports indicating that £2 billion was lifted out of pension savings by unscrupulous advisers in one year alone, it has been concerned to hear that the Financial Conduct Authority (FCA)’S dedicated scams team only consisted of around ten people, out of 3,700 FCA staff.
The FCA should review whether it dedicates sufficient resources to scams, it said.