News
MPs make pension providers sweat as cost inquiry launched
Guest Author:
Paloma KubiakThe Work and Pensions Committee has launched an inquiry looking at whether the industry provides consumers with transparency on cost, investment strategy and performance.
The Committee will examine whether pension savers are getting value for money, whether they understand what they’re being charged and why, the impact of costs on their retirement outcomes and whether it’s clear how money is being invested and how the investments are performing.
It will also look at whether pension savers are engaged enough to make informed choices, receive good value, impartial advice from financial advisers, whether higher cost providers deliver higher performance and look at if barriers exist for unhappy customers wishing to leave their provider.
The move comes as millions of employees have been enrolled into a workplace pension scheme, while pension freedoms have seen a sharp rise in demand for drawdown products. Further, the industry’s witnessed a surge in transfers out of defined benefit schemes into self-invested personal pensions (SIPPs).
As such, the Committee noted: “These developments have intensified concerns about the effect of investment management charges, transaction, advisory and other intermediation costs, in eroding the value of individuals’ savings. These are part of broader concerns that low levels of customer engagement and understanding, coupled with costly and opaque intermediation, risk leading to poor outcomes for pensioners.”
Tom Selby, senior analyst at AJ Bell, said: “The FCA has already turned up the heat on platforms over costs and charges, zeroing in on the amount of money firms make for every pound of client money invested. Now MPs are set to make providers sweat as part of a broader drive to ensure savers are able to squeeze every last drop of value from their pension pot.
Wellness and wellbeing holidays: Travel insurance is essential for your peace of mind
Out of the pandemic lockdowns, there’s a greater emphasis on wellbeing and wellness, with
Sponsored by Post Office
“This is absolutely the right focus. While cost is clearly only one component of value for money, it’s critical and can have a huge impact on retirement outcomes over the long-term.
“We also welcome the Committee’s focus on engagement, which remains far too low among savers both while they are saving and as they enter retirement.”
Selby added there is “significant room for simplification” of information sent to savers, which often run to 30 pages or more of complicated and confusing details “which very few people pay any attention to”.
He said: “As an industry we should be aiming to make this information as simple and accessible as possible, but to do so requires a loosening of the regulatory noose around retirement communications.”