ABI call for fee disclosure 'timely and appropriate'
UK - The UK pensions industry has enthusiastically welcomed the call by the Association of British Insurers (ABI) for a new regime on disclosure of pension fund charges.
The call, made in a letter by ABI director general Otto Thoresen to both The Pension Regulator (TPR) and the Financial Services Authority, was welcomed by TPR chief executive Bill Galvin as "both timely and appropriate" ahead of the introduction of auto-enrolment.
In the letter, Thoresen pointed out that there are significant differences in the way information on charges is handled.
"While contract-based pensions disclose all appropriate charges at the outset, trust-based pensions have no employee disclosure regime when an employee joins," he said. "And neither type of pension scheme necessarily discloses charges consistently on an ongoing basis."
However, Thoresen's claim that trust-based funds do not disclose charges immediately was challenged by consultancy Towers Watson.
Branding the claim "untrue", senior consultant Will Aitken said: "Today's trust-based schemes do disclose charges and new trust-based vehicles like NEST, NOW: Pensions and The People's Pension have made theirs transparent.
Asking why a trust-based scheme would opt to hide its costs, he added: "There is a world of difference between having no official disclosure regime and no disclosure.
"The whole point of a trust-based scheme is that trustees should be looking to do the right thing by members all the time, not only when the authorities have given them detailed instructions to follow."
He concluded that the regulator would undoubtedly take a "dim view" of trustees who obscured charges and that existing large trust-based funds already offered competitive charges, with nothing to be ashamed about.
Thorensen's letter continued by saying it was right that there should be scrutiny of costs of retirement savings schemes, alongside the value which they provide, given the arrival of auto-enrolment which would bring millions of savers into pensions for the first time.
The letter proposed a four-point protocol for disclosure, requiring consistent and simple disclosure of charges to employees across contract and trust-based pension schemes.
The ABI said that furthermore, employees in all pension arrangements should have access to transaction costs. According to the insurance association, this could be achieved by using the principles on which the Investment Management Association (IMA) had based its enhanced disclosure proposals.
Existing workplace pension schemes should also ensure that employees get clear and comprehensive information on charges, the organisation said, adding that there should be regular communication on charges and transaction costs as employees' funds build up.
Darren Philp, director of policy, National Association of Pension Funds, praised the ABI's initiative. "This call to improve transparency is a welcome next step to our work on an industry code to give better information to employers."
"It's vital that all groups are involved - consumer and employees must not be left out, particularly as this work is aimed at them," he added.
Jonathan Lipkin, associate director of pension and research at the IMA said that he "strongly" agreed that there should be a consistent disclosure template across the pension landscape. "The robust disclosure regime for UCITS investment funds offers a potential template."
Lipkin said further: "As the IMA's work on enhanced disclosure of costs and charges shows, we also agree that transaction cost information should be more accessible and are committed to achieving this goal."
The ABI suggests that a draft disclosure protocol should be agreed by the end of 2012.