The UK’s Work and Pensions Select Committee has launched a wide-ranging inquiry into pension costs and charges, including for financial advice.
The review follows a recently completed pension freedom and choice inquiry, which examined ways to ensure that people saving for their pensions are equipped to make well-informed decisions.
According to the committee, the latest inquiry follows on from this work, and focuses on whether the pensions industry provides sufficient transparency around charges, investment strategy and performance to consumers.
The committee says the inquiry will look at several areas; including whether individuals are getting value for money on their pension savings, they understand what they are being charged, they can see how their money is being invested and understand how their investments are performing.
Consultation begins
The committee is asking stakeholders to give evidence during the inquiry on a number of topics, including whether higher-cost providers deliver higher performance or simply eat into clients savings.
It is also looking for feedback on whether the government is doing enough to ensure that workplace pension savers get value for money.
Further, it is asking if customers are unhappy with their provider, what barriers are in place to stop them going elsewhere.
The committee said: “Recent years have seen a rapid rise in enrolment in workplace pension schemes, creating millions of new retirement savers.
“Alongside this, pension freedoms have spurred a sharp increase in demand for drawdown products, and there has also been a surge in transfers out of defined benefit schemes, with funds principally moving into self-invested personal pensions (Sipps).
“These developments have intensified concerns about the effect of investment management charges, transaction, advisory and other intermediation costs, in eroding the value of individuals’ savings,” it said.
The consultation process closes on 3 September.
British Steel
In its inquiry announcement, the committee says its recently released British Steel Pension report found that scheme members were “shamelessly bamboozled” by advisers and unregulated introducers into signing up to ongoing adviser fees and unsuitable pension products.
These investment products were characterised by high risk, high management charges and punitive exit fees.
The committee further found that the use of contingent charging by defined benefit (DB) transfer advisers gives rise to an “inherent conflict of interest” and recommended that the Financial Conduct Authority (FCA) ban the use of contingent fee models for DB transfer advice.
While the FCA has not adopted this recommendation, it is currently looking into the issue and is expected to report back in Autumn.
Pressure on providers
Tom Selby, senior analyst at AJ Bell, said the inquiry is set to make providers sweat, as part of a broader drive to ensure savers are able to squeeze every last drop of value from their pension pot.
“This is absolutely the right focus and we look forward to engaging with the committee as it digs into this important area.
“While cost is clearly only one component of value for money, it is a critical component and can have a huge impact on retirement outcomes over the long-term,” Selby said.
He said AJ Bell believes that in the wake of pension freedoms, there is significant room for simplification of the information providers are required to send to savers.
“These documents often run to 30 pages or more of complicated and confusing information, which very few people pay any attention to,” Selby said.
Helen Morrissey, pensions specialist at Royal London said: “We welcome this inquiry which addresses key issues such as whether enough is being done to ensure people get value for money for their pension savings, understand what they are being charged and how they can get good value service from financial advisers.”
“We will be sharing the work we have done in this area including our Value of Advice report which shows those who receive financial advice are on average £40,000 ($52,249, €44,960) better off than their non-advised peers,” Morrissey said.
