DWP reforms will lead to pensions mis-selling, report
Providers should be made to provide statements outlining hidden costs and charges, says think-tank.
Full and clear statements outlining hidden costs and charges should be made available to customers who are now being “badly misled” and are likely to be victims of mis-selling thanks to ill-considered government reforms, the RSA think tank has claimed.
According to the organisation’s report, Seeing through the British pension system, 21 out of 23 surveyed providers deny there were any additional charges other than the annual management charge and administration costs.
Where costs are declared, the report finds it is often not done in a way a typical saver would understand.
The report also claims that in its drive to reform workplace pensions the Department for for Work and Pensions has inadvertantly allowed the removal of current consumer protections. This increases the risk of future misselling scandals, it adds.
David Watson, fund manager and founder of Hermes Equity Ownership Service, said: “For markets to work effectively, consumers need to know what they are buying. It is extraordinary that, after so many years, such a system is not in place in this country.
“It is vital people have access to straightforward, accurate, high quality information.”
Harinder Mann, researcher at RSA, said: “Our research shows that customers simply do not understand the pensions they are buying, because they are being badly misled about the true nature of costs and charges.
“Under these circumstances markets will fail, customers will buy bad products and good pension suppliers are likely to be replaced by bad ones.”
Richard Saunders, chief executive of the Invesment Management Association, was sceptical of the report, labelling it in part “sensationalist” and accusing it of greatly exaggerating the cost of managing pension investments.
He said: “Nobody disputes that charges and costs are important and need to be disclosed in an accessible and meaningful way. For retail funds there is already a gold standard of charges disclosure, mandated under EU rules put together after extensive consultation and consumer research.
“We need that standard rolled out across the whole pensions and long-term savings market. The IMA also believes transaction costs can and should be better disclosed, and has made a proposal to its members to achieve this.”
He added: “The RSA chose not to consult the IMA in preparing this report. That is a pity but we stand ready to co-operate with it or any other body wishing to examine this area.
“We will resolve these issues only by working together, not by periodically lobbing hand grenades into the public debate, which simply fuel the mistrust of pension saving that the report’s authors say they want to address.”