Pensions minister Guy Opperman said current costs and charges rules make it impossible for savers and advisers to compare pensions.
Appearing at the Lang Cat Live event in London today (February 10), Opperman said the charging structure of workplace pensions was impossible for members of the public to understand.
Opperman said: “We have a cost charging system that is utterly incapable of price comparison. We have a product that is not sufficiently accessible to the wider members of the public.”
The DWP launched its consultation on flat fees and structures last year, moving to ban flat fees for pots under £100 and considering more broadly the structure of charges allowed within the charge cap.
But the DWP stopped short of implementing a universal charging structure for defined contribution schemes following feedback to its consultation, which ran until July 16, 2021.
The consultation sought views on the proposal that the government should streamline the current three permitted charging structures within the default fund arrangement down to a single universal charging structure.
A variety of charging structures were brought in to serve smaller pots more efficiently, following concerns lower earners were not adequately protected.
Addressing these concerns, Opperman said: “I’m not arguing that this should be done tomorrow. But in the longer term, you should be looking to make this as simple as you possibly can.
“So that members of the public who wish to understand costs and charges can do so, and can either price compare, or have a better understanding of what the value looks like.”
Since 2012, the minister said costs and charges have been “a key metric” in the defined contribution pension space, but that it “has to evolve” over the next decade.
In the long term, Opperman said the industry should be working towards a more simplified cost and charging structure and suggested that provider consolidation could help this along.
The minister said the question to ask is whether costs and charges would remain the same for the next five to 10 years.
“I can't believe there's a single person who would genuinely argue that is appropriate. That's why I make the point. Don't do pensions legislation for tomorrow.”
Addressing defined contribution providers, Opperman said over the next decade these firms will disappear. “You are going to be consolidated, by fair means or foul, over a period of time,” he said.
When asked whether pensions work for real people, Opperman said: "Not enough. If we're going down the DC route, we have to make it more accessible."
ruby.hinchliffe@ft.com
