The National Association of Pension Funds' ‘pounds and pence' proposed code of conduct for DC charges has split the industry. Rachel Dalton reports.
“Employers could be placed on the defensive if they chose anything but the cheapest option.” RPMI head of technical services Nigel Oakley said: “There is a risk that the code could facilitate a race to the bottom in terms of charges over other considerations.”
He said it was not clear who would be responsible for the maintenance of a tool or database to collate the information for the average charge model.
The proposed timetable for the code faced scrutiny. The NAPF had proposed to implement the code by the end of 2012, but SPC said this was ambitious.
SPC said in its response that the NAPF had set “a very challenging timetable given the demands of introducing auto-enrolment, RDR, Solvency II and adjusting for the Test Achats judgment.”
How should it look?
Despite this, most respondents supported the idea of a two-page summary document for savers. The SPC said: “We agree that the aim should be to have a charges guide with a maximum length of two pages. As far as possible the code should build on existing key features information.
“This focus will avoid the difficulties recognised in the consultation document, where trust-based schemes have more than one provider of services, which might be responsible for producing the proposed summary of charges. However, others said such a short document would be impractical.
Oakley said: “We recognise the importance of providing information in a concise and easy to understand manner. However, a maximum of two A4 pages may be insufficient to provide all the relevant information required for an employer to make an informed decision.”
Which charges where?
Which charges to include in the two-page document and subsequent paperwork, and how to break those charges down, was another complex area.
Macro said: “A stronger distinction should be made between those charges that impact member outcomes and those paid directly by employers to advisers and providers.
“It is important to distinguish between selecting an adviser, selecting a provider, and on-going maintenance of a contract.” However, the SPC disagreed.
“It is not clear why consultancy charges should be shown on the template,” he said.
“Unlike fees, consultancy charges would be reflected in the pie charts and so would be disclosed for a second time in the guide. Fees for advice or administration would only appear in the guide.”
The NAPF’s Proposals
1) The code will apply to insurance companies providing contract-based pensions and master trusts; multi-employer trust-based schemes including the National Employment Savings Trust; fund managers; financial advisers; employee benefit consultants; other professionals providing paid advice on setting up a pension such as accountants; and third-party administrators.
4) All pension service providers must distribute a standard charges guide, of just two A4 pages, which will aid members in comparing and choosing a pension.
5) The charges guide will contain a baseline comparator which will compare the scheme on offer to NEST; a hypothetical scheme with a 0.5% ongoing charge; or average charges across the industry.
6) The charges guide should demonstrate the charges levied on active and deferred members.
7) The charges guide should include any consultancy fees paid by the employer if appropriate.
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