Pensions need more transparency: report
Investors are in the dark now about pension charges as much as they were four years ago and better education is not the simple answer, an academic study has found.
According to a 26-page report from the Royal Society for the encouragement of Arts, Manufactures and Commerce, individual consumers and small companies providing pension schemes ‘in good faith’ to their employees do not understand the charges being levied.
The report, Seeing Through British Pensions: How to Increase Cost Transparency in UK Pension Schemes, by David Pitt-Watson and Hari Mann, claimed that out of 23 providers surveyed, 21 said the annual management charge and administration costs were the only charges.
Just two providers admitted there were other possible expenses, such as trading costs and stock lending. Fees for similar services varied from 0.1 per cent to 1.5 per cent and none of the providers said the total expense ratio was not included in the AMC.
The RSA report added: “We would conclude that pension savers are not being provided with adequate information. This means customers are ill-informed about the effect costs have on the return on their pension pots.
“Financial education is not a panacea. Whatever the level of financial understanding, the market for individual pensions cannot be effective without transparency in clear and understandable English. Even the most capable financier cannot make a good choice if they do not know what they are buying.”
Gina Miller, co-founder of boutique asset manager SCM Private, which has spearheaded the True and Fair Campaign on costs, said: “Paying lip service to transparency is one thing, doing something about it is altogether different. Change is coming and we welcome the support of everyone who’s starting to recognise this.
“Pensions are a long-term investment – 25 years or more. So a small difference in fees and charges can make an enormous difference to the amount of money customers get out at the end.
“However it’s not just the visible, upfront fees that reduce the value of someone’s savings. It is the hidden fees. Administration costs and dealing fees that can take an equally significant bite. But a lack of transparency means that more often than not people are not even made aware that they will be paying them.”
Andrew Hart, financial planner for London-based Serenity Financial Planning, said: “I would say that you need a mix of the two, both education and disclosure over costs and administration fees.”
The RSA paper was released a few days after Liam Byrne, Labour’s shadow work and pensions secretary, and Gregg McClymont, shadow pensions minister, launched a six-page policy paper, Pensions People Can Trust, to focus on ways to improve pensions for consumers.