Member News
By Brandon Lewis MP - 7th December 2011
Brandon Lewis MP says for pension reforms to succeed, ministers must take the lead in pushing the industry to simplify information provided and to do so consistently.
When your annual pension statement arrives, do you study it in detail or glance at it, before scratching your head and filing it away? I imagine most consumers feel confused, as they see phrases like "annual management charge", "reduction in yield" and reference to a "bid/offer spread". A natural reaction is to assume that the pension company and fund managers understand it all and know what is best for you. For many the feeling is that the information is important, but without an understanding of why and what it means for the value of their final pension pot.
Quite rightly, there are constant demands for greater transparency in pension fund investments. Jon Cruddas MP highlighted this during an adjournment debate last year. Transparency in pension charges should be no different.
The introduction of auto-enrolment pensions next year, with the potential of 11 million people given access to a workplace pension, means increasing transparency in pension charges is vital for consumers and small businesses to make an informed decision about their fund choice. For the pension industry, providing clarity on the cost of a particular plan, will maintain consumer confidence and encourage millions of new customers to save for their retirement.
Although, the cost of making regular contributions is the biggest factor preventing people from making a pension provision, suspicion of the pensions industry is another. The complicated and confusing financial jargon used contributes to that suspicion. In a recent industry survey, 80 per cent of respondents wanted greater transparency and more information about how pensions work and associated costs. If we are to encourage a new generation to save for retirement, we need to overcome the hurdle of a fifth of 18 to 24 year olds saying that charges are the single prohibitive factor for them joining a pension scheme. As important, is minimising the numbers opting out of the scheme they are enrolled in to automatically by their employers.
If the government's radical reform of pensions is to succeed, ministers need to take the lead in pushing the industry to simplify information provided and to do so consistently. The wide range of approaches is needlessly complicated. Some pensions regulated by the Financial Services Authority require an illustration of the effect of charges; others (mainly those that are trust based) have no requirement for disclosure. Whereas, the Stakeholder Pensions introduced in 2001, require disclosure of individual deductions. Lack of comprehensive and consistent information prevents effective monitoring by the FSA, the Pensions Regulator and the Department of Work and Pensions itself, creating a regulatory black hole.
I agree with the pension provider Aviva that we should not focus, "entirely on charges, as that is counter-productive and risks deterring a generation of new savers." However, changes in the way charge information is provided will lead to a better understanding of other factors influencing final provision and a clearer demonstration of whether a particular pension provides value for money.
The government's role in this transformation should be to guide the process, resorting to regulation or further legislation must be the final option. If working with the industry and consumer groups, we can introduce a code of practice on charges and fee transparency, we can assist consumer confidence and understanding.
Improving or removing the culture of small print and creating an industry wide guide to pension charges, showing what services customers are receiving in exchange for charges will help as well. Ultimately, I wish to see all providers providing information in plain English, that isn’t in percentages or units but in pounds and pence.
Brandon Lewis has been Conservative MP for Great Yarmouth since 2010
Dods Parliamentary Communications Ltd