Too much, too soon and too complex
The NAPF's proposed coded of conduct on charges has split the industry reports Rachel Dalton
The National Association of Pension Funds' ‘pounds and pence' proposed code of conduct for DC charges has split the industry. Rachel Dalton reports.
In autumn 2011, the NAPF announced it would create a voluntary code of conduct for insurers, master trusts, fund managers, financial advisers and administrators, which would act as a guide to providing transparent information to savers on the charges they pay (PP Online, 20 October 2011 ).
A simplified, standardised charging document of no more than two pages was the crux of the proposed code. In May, the association put forward its proposals for the code to the industry (PP Online, 16 May ). With the consultation now closed, the industry has given its response – and it is not all positive.
Low charges: a panacea?
The NAPF proposed that charges for schemes should be presented to consumers against a baseline comparator and offered three options for this comparator.
The idea that NEST’s charges should be used as a baseline was not popular with respondents. The Society of Pension Consultants said in its response: “There is no good reason to have NEST as the comparator scheme.”
The second and third options for the comparator were to compare schemes to a hypothetical scheme with an on-going 0.5% charge, or to compare to average charges across the industry. Both attracted criticism.
SPC said the two latter models “might be irrelevant to a particular employer”, while the Association of Consulting Actuaries said the hypothetical 0.5% charge scheme was the “least worst option”.
The ACA added that when comparing charges, the use of a single sample member for the comparator (of a certain age, sex and income) is a “great simplification” but could “complicate the production and understanding” of the illustration.
“The use of 8% of qualifying earnings is likely to be unrepresentative of the contribution structure in the arrangements of the majority of employers using our member firms,” the ACA added.
The focus on charges itself was also a cause for concern among respondents.
Mercer UK head of DC Paul Macro said: “In some cases lower charges might lead to better value for money, this is not always the case. There is a lot of evidence that investing in stronger governance can produce better member outcomes.”
SPC added: “Low charges will not secure a good outcome if combined with one or more of inadequate contribution levels, inadequate investment returns and unsuccessful decumulation.
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