The Department of Work and Pensions (DWP) will consult on regulating how asset managers’ costs and charges, as they affect pensions, should be published for transparency purposes.
Speaking at the Pensions and Lifetime Savings Association conference last week (19 October) in Manchester, Guy Opperman, the minister for pensions and financial inclusion, said he wants to build on the work of the Financial Conduct Authority in this area.
According to new rules published by the regulator last month, asset managers will have to disclose total transaction costs to pension schemes that directly or indirectly invest in their funds.
These firms will also have to provide information about administration charges, and a breakdown of the transaction costs, on request, with the total broken down into clear categories of costs.
Mr Opperman said that he wants to take these rules one step further, and provide this breakdown of costs and charges “to members of defined contribution schemes themselves”.
He also revealed “the FCA will also bring forward corresponding rules for members of workplace contract based schemes in due course”.
He said: “The publication of charges and transactions costs information will enable trustees and engage members to compare the value for money they are receiving with their peers. We hope driving better market outcomes.”
Mr Opperman argued that pension schemes need “to be well governed, and efficient, with low and transparent costs and charges”.
He said: “This, we hope, will give people confidence that their savings are secure, and that they are getting a good deal.
“With each pound the employer and the taxpayer puts in, working as hard as possible.”
Mr Opperman added that there have been improvements in the value of pensions since the introduction of auto-enrolment and a cap on charges.
Since April 2015, providers have had to cap the charges within default funds to 0.75 per cent per year of funds under management.
“We said that this year we would examine if the cap should come down, or whether the transaction costs should be covered,” Mr Opperman said.
He added: “We have engaged with a wide range of interested parties, and we expect to conclude this examination very very shortly.”
Mr Opperman also revealed that the DWP will announce proposals, with accompanying regulation for consultation, to facilitate bulk transfers between DC workplace pension schemes in the next few weeks.
Under current rules, single employer DC schemes wanting to transfer the bulk of their members to another DC scheme – either a single employer trust-based scheme or multi-employer master trust – without the members’ permission must fulfil a number of requirements.
The DWP published a consultation on this matter last December.
Mr Opperman said: “Many smaller DC schemes are well run and go to great efforts to ensure their schemes offer good value to members.
“However, we are aware that some employers no longer wish to offer a DC scheme; and believe that members will receive better governance, greater administrative efficiency and better outcomes overall in larger schemes.”
Mr Opperman also revealed that the industry response was that the current conditions for transfer without member consent are complex, and are “a key obstacle to allow the DC scheme consolidation to develop”.
He said that the current regulations covering the process of consolidation through bulk transfers between pension schemes without the consent of scheme members was drafted at a time where defined benefit (DB) schemes dominated, and are not updated to the DC sector.
Alan Chan, director and chartered financial planner at London-based IFS Wealth & Pensions, argued that it would be a matter of concern if “the transfers were allowed without member consent”.
He said: “However, I think under the right controls it can be a good idea.
So, for instance, I would expect the employer or the DC scheme trustees to undertake a consultation period with their members, and to take financial advice and prove that the new scheme would be at least as good as the current one for majority of their members.
Mr Chan also said that employers could “possibly identify the group of members where this may not be such a good idea for and urge them to take personal financial advice”.
“However, sometimes it can be difficult to get hold of members, particularly if they’ve moved addresses a number of times and have not told the pension scheme,” he concluded.
maria.espadinha@ft.com
