There will be no “brave new world” for pensions unless transaction fees are made clearer, shadow pensions minister Gregg McClymont has claimed.
During a Pensions Schemes Bill committee meeting on the bill, which will create three definitions for pensions, Mr McClymont said the reforms needed to include disclosure of transaction costs.
He said: “The pensions minister Steve Webb cannot both claim to be creating a brave new world and at the same time not take the necessary action to disclose the transaction costs.
“Unless the government gets cracking to make sure the investment reports contain the necessary information to make an informed judgement on the quality of the investment then we are not going to get those better-performing pensions which the minister and myself are so keen to see.”
He said it “seems sensible” to put the onus on fund managers to disclose transaction costs.
The bill outlines three scheme options: defined benefit pensions, which offer a full promise of what the benefit will be while members are saving; shared risk pensions, which offer a promise of some of the outcome from the scheme; and defined contribution, which do not offer the members any promise what their benefit will be.
It also says regulations may require the trustees or managers of a pension scheme to obtain reports about the performance of a collective benefit pension.
Earlier this year, a white paper from the Pensions Institute showed that hidden costs can account for as much as 85 per cent of a pension fund’s total transaction costs.
Responding to Mr McClymont’s claims, pensions minister Steve Webb said: “From next April trustees will have a duty to obtain the sort of information they have never had before.
“We are making sure trustees know what is going on. We are moving away from a world where a lot of these things are hidden to one where we are shining a light on them.”
Once the Pensions Schemes Bill has been examined by the committee, it will be discussed again in the House of Commons.
It is expected to become law before the next general election. A Taxation of Pensions Bill is being discussed concurrently.
Adviser view
Barry O’Sullivan, senior technician for Newcastle-based Lowes Financial Management, said: “I can see these costs being an issue for non-advised clients who are not aware of the risks.
“As with a lot of the reforms, I think advised clients are in a better position because these things are all discussed.
“It is a noble aim but it seems this is being rushed through, and it might not work as well as people would like it to.”