Trustees and unions are putting pressure on regulators to come clean over the hidden costs of charges to pensions schemes.
A 42-page report from the Global Unions Committee on Workers’ Capital, titled Pension Fund Cost Transparency: A How-to Guide for Unions, stated it is hard for employees to find out how much of their retirement savings are being paid out to asset managers, because so few schemes clearly set out their charges.
The report also stated that employees globally are unaware of the cost of their pensions and the lack of clarity means workers do not know whether they are getting value for money or how the investments that will fund their retirement are performing.
Colin Meech, co-author of the report and national officer for pensions and investments at Unison, said: "No-one would dream of buying a new car or a fridge freezer without knowing the costs and performances of particular models, but unfortunately the same can't be said of most pension schemes.
"Without knowing the charges being levied, it is nigh on impossible for workers to assess just how well, or how badly their pension scheme is performing.
"But if schemes used the new guide to become more open about charges, the most likely result would be a drop in fees, and a rise in returns. Then workers and their retired colleagues would see a much welcome boost to their pensions."
The report suggested pension schemes in the UK, the Netherlands, the US and Australia should start using transparency templates to make employees aware of costs.
A report into transparency templates that could be adopted by UK pension schemes is due to be published by the Financial Conduct Authority (FCA) later this year.
According to the report, defined contribution (DC) schemes in the UK have to set out their charges, but there is no similar obligation on the country's 6,000 defined benefit schemes (DB).
Ricky Chan, director and financial planner at IFS Wealth and Pensions, said: "Requesting pension schemes to complete 'transparency templates', it will level the playing fields more and enable employers and trustees to make an informed decision into the value of certain pension funds.
"I suspect that this could affect legacy pension schemes more as they are known to have more opaque charging structures, e.g. conventional with-profits funds.
"I’m just surprised that it has taken more pressure and regulation to disclose these costs – for a layperson, one would reasonably have expected annual management charge or total expense ratio or the like to have included all such costs, but clearly not."
rosie.quigley@ft.com
