Pension firms to be forced to become more transparent on charges

by Kyle Caldwell from Money Observer |

The Financial Conduct Authority has detailed final rules and guidance to make pension charges more transparent for consumers.

Pension charges will become more transparent for millions of savers, following new rules introduced by the Financial Conduct Authority (FCA).
  
The regulator has ordered pension firms to report, by next July at the latest, the charges levied (including transaction costs) by the default fund selected by the workplace pension fund, alongside a representative sample other funds and their charges. 

Alongside fund charges, pension firms are also required to include an illustration of the compounding effect charges have over time. Such information will be provided annually. 

In theory, by providing some comparisons this will help consumers become more engaged about where their pension is invested and assess whether they are getting value for money.

Disappointingly, though, the FCA has said it does not require “the aggregated charges for all the available funds/options available to members”. According to the FCA, doing so risks overwhelming pension savers and may act as a disincentive rather than an incentive to engage.

Nonetheless, commentators welcomed the FCA’s proposals. Moira O’Neill, head of personal finance at interactive investor, says: “The requirement for pension firms to provide an illustration of the compounding effect of the aggregated costs and charges over time is welcome.

“The wider industry should take note, but it would also be good to see the industry go one step further: to show the effects of the lifestyling approach, still common in workplace pensions that de-risk investors over time.”

Tom McPhail, head of policy, at Hargreaves Lansdown, notes: “Costs and charges have a significant impact on people’s retirement savings. It’s not only important this information is disclosed, it also matters how it is disclosed. 

“Clear, simple disclosure from a trusted source is vital if people are to engage with the information and have confidence to act on it. The FCA has come up with a proportionate and well-considered response to this challenge, which should satisfy consumer groups and the industry alike.”

This article was originally published in our sister magazine Money Observer. Click here to subscribe.

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