The RSA Tomorrow’s Investor programme today gave a cautious welcome to the OFT recommendations into workplace pensions. David Pitt-Watson, leader of the project commented, “This report is a big step forward. But are we there yet? Absolutely not”
The OFT inquiry began in January 2013 and following the publication of the RSA study the previous summer. The RSA study demonstrated that many pension charges were opaque, that customers were misled, that some charges were very high, and that these would have a dramatic effect on pension outcomes. Following its publication, promises of reform were made by the industry. They have yet to be honoured.
The OFT report recommends that investigation be made of charges, that governance structures be changed, and that consultation take place on providing better information. It does not recommend a cap on charges, nor does it yet define what information the industry should provide.
“These reforms help. A well governed industry, with clear information is a necessary condition for effective markets. And it is not difficult to achieve in pensions. In Denmark and Holland such systems are there as a matter of course, and it is disappointing that UK companies which operate in those countries seem unable to replicate best practice in Britain. It is of critical importance that these reforms are quickly implemented. What the OFT has recommended will take some time to implement, and if auto-enrolment is to be effective, and consumers are to be protected in the meantime, minimum standards need to apply to workplace pensions.”
The report from the OFT 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.
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.
Notes to editors
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