Costs deducted from funds significantly impact the amount an individual can build up; and, as a result, on the retirement income they can draw. However, according to FSCP research from 2014, the full extent of these costs is simply not known.
FSCP believes that the proposed standard will improve the transparency of pension funds and provide trustees and independent governance committees – responsible for assessing value for money for scheme members – with better insight into the charges being paid.
Those governing pension schemes need to have clearer sight of the charges they are paying to give them a basis for negotiating savings for their members.
FSCP has therefore proposed that the Financial Conduct Authority (FCA), Department for Work and Pensions (DWP), and The Pensions Regulator (TPR); along with the relevant professional and trade bodies, define and implement a new standard for data collection of costs and charges on UK pension funds.
“The problems of cost opacity and conflicts of interest in asset management are well known and long-standing."
In addition to greater inter-organisational cooperation, FSCP also recommends:
- The standard should initially be based on data that asset managers can report immediately. It should be consistent with the packaged retail and insurance-based investment products (Priips) definitions of costs and the outcome of the DWP/FCA work on transaction costs.
- Data collection should be in a standard format and reported on a “comply or explain” basis.
- The FCA and TPR should strongly encourage independent governance committees (IGCs) and trustee boards to only use pension funds that comply with the standard.
- The FCA should conduct research into the practical difficulties of a single charge, and make proposals for overcoming these.
Opacity and conflict
Sue Lewis, Financial Services Consumer Panel chair, said: “The problems of cost opacity and conflicts of interest in asset management are well known and long-standing. We are always being told there is a solution just round the corner, whether it is European legislation or the work DWP and the FCA have done on transaction charges.
“While the direction of travel is welcome, millions of pension savers are still losing out year after year by paying too much in unseen costs and charges. We are recommending a small step that could be implemented quickly and make a big difference to tomorrow’s pensioners, without prejudicing more far reaching change to come.”
The Investment Association (IA) also announced this week the formation of a working group of technical experts from its member firms, as it looks to deliver its long-planned update to the industry’s cost disclosure regime.
Guy Sears, interim chief executive of the IA, said: “The alignment of the investment industry and consumer representatives on the future of charges and costs transparency has never been higher.
“The FSCP report supports the Investment Association’s views on mechanisms for the next generation of transparency, and is in line with our expectations for the new levels of disclosure to be introduced under European rules planned for the future.”