The Association of British Insurers (ABI) has announced an agreement to ensure the consistent and straightforward disclosure of pension charges and costs to employees in workplace pension schemes.
The agreement will be implemented by the summer of 2014 for schemes that arenewly established for auto-enrolment, and for all older workplace pension schemes by 31 December 2015.
A common definition of all charges to be disclosed at the outset to pension scheme members will be developed in the first half of 2013.
The agreement will require:
- The disclosure to employees of total charges at outset, to a standard definition, across contract and trust-based workplace pension schemes, including any entry or exit charges.
- The disclosure of the total charges taken in the previous year. It is intended this will be expressed in pounds, either as the exact amount or as a rounded figure in each case, where reasonably practical.
- The disclosure of the previous year’s investment transaction costs (using the Investment Management Association’s (IMA) guidance).
The agreement has been developed by the ABI and its members in conjunction with a working group consisting of representation from the Financial Services Authority, IMA, National Association of Pension Funds, The Pensions Regulator and the Department for Work and Pensions. A number of consumer and representative bodies have also been consulted.
The ABI will monitor the agreement and provide regular progress reports. This will include information on the number of schemes and proportion of the market where the agreement has been implemented.
Pension providers that have signed up to the agreement include: Aegon, Aviva, Axa, B&CE (The People’s Pension), Co-operative Insurance, Friends Life, Legal and General, Lloyds Banking Group, LV=, MetLife, Prudential, Royal London/Scottish Life, Standard Life and Zurich Assurance.
This initial group is drawn from the ABI’s membership and consultation will continue on extending this to the broader market of pension provision.
Stephen Gay, director of life, savings and protection at the ABI, said: “This agreement is a vital way of providing savers with greater understanding and confidence in the value of saving for their financial needs in later life.
“The agreement demonstrates the industry’s commitment to improving customer understanding in pensions by disclosing all pension charges and costs more clearly and consistently.
“Automatic-enrolment into workplace pensions is bringing millions of people into pension savings for the first time. It is imperative that savers have complete confidence that the industry is open and transparent with them.”
Steve Webb, minister for pensions, added: “This is a welcome step in helping customers make decisions about their long-term saving and I hope to see providers across the industry signing up to this agreement.
“Charges really matter. Small differences can have a big impact on a pension pot over time.
“Automatic-enrolment makes it all the more important that people have access to schemes which offer both transparent and value for money charges. The industry must be ambitious in its timescales for achieving greater transparency.”
As a provider of DC pensions, both trust and contract, we fully support the new ABI initiative. Currently, the methods of disclosure within the Annual Management Charge vary slightly across providers and scheme types. This makes comparison difficult and causes confusion for consumers.
Due to the bad publicity over the years, there also remains a public perception that providers are ‘hiding something’. Improving disclosure and transparency, so there is a common method of disclosure, will begin to remove these myths and improve confidence.
This won’t be easy, as the definition of ‘what’s in a charge’ is not always straightforward. Other countries have taken years to move to a common method of disclosure. We look forward to giving the ABI our full support and assistance.
Aegon supports this industry-led initiative to further improve the clarity and transparency of charges and investment costs across all workplace pensions. The first priority must be to focus on new schemes being used for auto-enrolment – this is where enhancements will deliver greatest short-term benefit.
In the contract-based world, regulations already make sure there is extensive disclosure. This initiative builds on this, with the additional disclosure of investment transaction costs in line with the IMA code. There is also further work underway to come up with common definitions which will aid comparability and consistency.
The initiative also aims to deliver consistent disclosure standards between contract and trust-based schemes. Members of trust-based schemes not run by FSA-regulated insurers don’t always receive information on charges at outset. We hope those offering trust-based schemes sign up as this could deliver real benefits to their members.
Nest welcomes the ABI’s agreement on the disclosure of pension charges and costs. It is important that all those who save in pensions have the opportunity to see clearly how much it costs them to save. It is good to see the industry taking these healthy steps as a new market of 8 million consumers start saving into a pension for the first time through automatic enrolment.