The debate over the level of defined contribution charges is years old but has intensified as auto-enrolment approaches. Hannah Brenton takes a look back at the debate so far.
In the constant back-and-forth, it is easy to forget how quickly the debate over DC charges has escalated. In the last 12 months consensus has built among policymakers that charges remain too high and opaque.
The National Association of Pension Funds set the ball rolling in October last year. Speaking at the trade body’s annual conference, chief executive Joanne Segars said the industry had to work to restore public trust as complex charging structures sound like “Swahili” to most members.
She called for a ‘pounds and pence’ approach to charges, to replace the standard practice of expressing charges as a percentage of a members’ pot.
Both Segars and Pensions Management Institute chief executive Vince Linnane argued auto-enrolment simply will not work without transparency on charges.
With up to ten million people set to begin saving for the first time over the next six years, fears of a mis-selling scandal have emerged. The concern is that if these new savers see already modest pensions eroded by high costs and charges, they will opt out and blame both providers and the government for a broken system.
Following a working group meeting, the NAPF published its proposed ‘pounds and pence’ charging code in May, which would serve as a voluntary code of conduct. It advocated that all providers should create two-page documents for customers, disclosing the charges in a standard format.
The industry body closed its consultation on the exact structure of the disclosure document earlier in July and is expected to publish its final recommendations this autumn.
However, industry figures have argued the code places too much emphasis on low charges and could instigate a “race to the bottom” that would not benefit members.
The ABI strikes back
The Association of British Insurers released a report in June that downplayed the importance of fees and argued pension charges are no longer “very high and complex”.
The report, entitled Time to Act: Tackling our Savings Problem and Building our Future, argued that most people entering auto-enrolment would face a low annual management charge.
The Pension Protection Fund (PPF) has published contingency planning guidance for trustees to help them manage risk.
The trustees of the Autoenrolment.co.uk and Moore Stephens master trusts have been fined for "deficient" chair's statements after failed court action against The Pensions Regulator (TPR).
Henry Tapper shares his thoughts on how IGCs could provide value for money statements that people wanted to read