Missed chance to tackle pension schemes offering poor value for money

interactive investor comments on value for money response.

Interactive investor comments on government response on value for money framework.

Alice Guy, Head of Pensions and Savings, interactive investor says: “While we welcome the proposals to introduce some form of costs and charges ‘benchmarking’, we are concerned that schemes will simply be compared with their peers (particularly in the workplace pensions space) and thereby essentially allow comparison of a poor value-for-money (VfM) scheme with other similarly poor VfM schemes.

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“For benchmarking to be effective, comparisons must be made with schemes from the wider pensions market that differ in structure, size and membership demographic and, in particular, with more modern pension products (such as SIPPs) that can potentially offer greater value and choice.

“This is a missed opportunity to tackle unfair pension fees once and for all that will leave many pension savers locked in with poor-performing, expensive pension schemes. Thousands of pension savers are stuck with very high fees from older pension schemes, started before the 0.75% pension fee charge cap was introduced in 2015. It’s an administrative nightmare for pensions savers as they often have multiple pension schemes all with different charges, even with the same provider.

“It’s therefore extremely disappointing that the new rules will only compare investment performance gross investment fees, with charges and fees disclosed elsewhere.

“Investment fees are a drag on performance and can take a significant bite from someone’s retirement savings. Additional pension fees of 0.5% each year on a pot worth £100,000 could add up to £22,063 over 20 years (based on 5% annual returns on a pot worth £100k, with 1% fees compared with 0.5%, which is a scenario only).

“The value for money framework was supposed to make it easier to compare pension schemes, but having a separate disclosure on performance and fees will make it almost impossible for pension savers to compare performance between providers.”

“It’s understandable that some pension providers find it difficult to provide performance data, with a range of different fees charged to different customers. But there’s a danger that “value for money” is watered down, with the needs of pension providers considered more important than consumers.

“If you’re driving on the motorway, understanding the detail of how the engine works isn’t important. But you’re more interested in the overall performance of the car and why you’re using more petrol than planned. Making it easier to compare pension providers and giving more clarity on all aspects of investment performance is particularly important in the light of consumer duty standards. We need to make it easier for pension savers to compare providers, so they can see where they are getting poor value for money and are not left making decisions in the dark.”