The Association of British Insurers (ABI) has pledged to introduce a new set of rules that will tell savers exactly how much of their pensions are being swallowed up by charges on an annual basis.
The move follows a five year campaign by the RSA to reduce hidden costs levied on British pensions, including its July 2012 report Seeing through the British Pension System that called for greater transparency including the declaration of hidden costs, such as those associated with buying and selling shares.
In a letter to The Pensions Regulator and the Financial Services Authority (FSA), the ABI, which represents pension companies and fund managers, pledged a 'commitment to transparency', with 'consistent and simple' information about how much a pension company takes as annual management fees and transaction costs. The letter said it's likely the charges will be set out to savers in an annual statement.
Commenting on the move, head of the RSA Tomorrow's Investor project, David Pitt Watson said:
"The ABI's pledge to improve transparency about costs and charges represents a big step forward towards creating a competitive, transparent market which works in the best interest of the customer. For too long the industry has failed to give full information - so we warmly welcome the fact they've listened to our advice and have acted swiftly to restore confidence in the British pension system."
The RSA report found that purchasers of personal pensions are currently being misled about the level of hidden costs and charges, with 21 out of 23 providers denying there were any additional charges other than the annual management charge (AMC) and administration costs.
The report uncovered how the costs declared in the AMC are not the only charges savers need to pay. Audit and custodial costs are often charged separately, and further hidden costs often associated with trading shares, including taxes, stock lending fees and broking commissions are currently not being declared.
Furthermore, even when costs are declared, it is not done in a way in which typical pension savers are likely to understand. The enormous impact of fees, where a 2 percent annual charge can result in a halving of pension benefit is not understood by individual consumers or by small employers, the report concluded.