The government must ensure the Financial Conduct Authority forces schemes to disclose all defined contribution pension costs, as simply disclosing “some” costs could allow firms and the Association of British Insurers to “exploit” the new rules, the True and Fair Campaign has warned.
In yesterday’s (12 March) third reading of the Pensions Bill, the Lords made an amendment to ensure that “some or all” of the transaction costs of a relevant defined contribution scheme are made to members.
The new clause 44 amendment says the Secretary of State must make provision requiring the publication of information about “some or all of the transaction costs of a relevant scheme, and some or all of the administration charges imposed on members of a relevant scheme”.
The amendment added that the Financial Conduct Authority must make “general rules” requiring information of “some or all” of the transaction costs be given to members of the scheme, spouses or civil partners of members and persons within the application of the scheme
David Freud, parliamentary under secretary of state for work and pensions, said in the Lords debate the ‘some or all’ formulation in the drafting of this provision has been used to “future-proof the legislation”.
He said: “This flexibility, and our existing powers to require disclosure of information, will enable us to provide for full transparency of all pension scheme costs and charges.
“The amendments now place a corresponding duty on the Financial Conduct Authority to that which we have placed on the secretary of state.
“In this way, it provides a better fit with the shared approach to regulation of pensions that exists between the Pensions Regulator and the Financial Conduct Authority.
“It provides for regulations and rules to be made that apply in a consistent way across both trust and contract-based provision. The duty on the Financial Conduct Authority mirrors the duty on the Secretary of State requiring both disclosure and publication of information about costs.”
However Gina Miller, founder of SCM Private and the True and Fair Campaign, said the “some or all” provision does not go far enough as the wording could be open to “misinterpretation”.
She said: “Disclosure of ‘some or all transaction costs’ sounds ominous and while I hope to be proved wrong, the jury is out as to the positive impact this will have on consumers. This amendment must not be allowed to create a loop-hole that the ABI and others can exploit.
“Given the investment management industry’s record in hiding costs and fees from consumers, I am concerned that the amendments to the Pensions Bill could result in consumers being sold a pup. Nothing less than full disclosure on all costs and fees is acceptable.”
Lord Freud added this is “one part of the programme” to ensure that consumers receive value for money from their pension savings.
The full programme of measures will be published soon.