In a letter to the regulators, the Association of British Insurers (ABI) has set out an action plan for clearer pension charges and costs.

The organisation is asking them to improve transparency across the whole of the pensions industry and raise consumer confidence ahead of the introduction of auto-enrolment this autumn, and highlights direct actions to do so.

In the joint letter to The Pensions Regulator (TPR) and the FSA, the ABI sets out clear priorities for action towards developing an industry protocol by the end of the year. The letter has been welcomed by recipient TPR and other industry bodies.

ABI would like to see a consistent and simple disclosure of charges to employees across contract and trust-based pension schemes; clear transaction costs made available to employees in all contract and trust-based schemes; and regular, clear and meaningful information on charges and transaction costs in new and existing schemes.

A welcome debate

Otto Thoresen, ABI's director general, said: "While charges for contract-based pensions have reduced dramatically in recent years, we must ensure that, across all types of defined contribution (DC) pensions, information on charges and costs is available, clear and meaningful, and helps employees make the right decisions about their pension.

"Auto-enrolment will have a critical impact on the future retirement prospects of today's workers. If we are to minimise opt-outs it will be vital that employees understand what they are paying and have confidence in the pensions they are being auto-enrolled into." 

After receiving the letter from the ABI, Bill Galvin, chief executive of TPR, said: "Last summer TPR called upon the pensions industry to improve the transparency and comparability of pension charges. We are very pleased that the ABI has proposed this action plan and we welcome the opportunity to engage with them... Action by the industry now, ahead of the main wave of auto-enrolment, is both timely and appropriate.

"Full disclosure of costs and charges is a key tool to help promote value for money. This can be a complex area so those who choose and run schemes, such as employers and their advisers, trustees and providers, are in a powerful position to encourage value for money to the benefit of members."

Two regulators, too much confusion

The regulator itself though is also a point for concern for the ABI. Thorensen said: "For too long, different parts of the private pensions system, regulated by two different regulators, have given employees too little information about what they are paying. Openness and transparency are now expected by customers, so we all have to do better."

Darren Philip, director of policy at the National Association of Pension Funds (NAPF) said the organisation welcomed the letter and the debate, but also highlighted the point of the two regulators, saying: "The current regulatory system causes confusion, and having two regulators for workplace pensions does not help. Ultimately the goal is a clear and stable environment that delivers the best pensions possible."

"Fears about charges are putting people off pensions, and the industry must address that by being more upfront about its fees. Communication needs to become simpler and more transparent across the pensions landscape. Savers must not be overloaded with unfathomable small print."

As Mark Belchamer from SHILLING Communication pointed out in his blog this week, a recent MRM study showed that only 7% of people in their twenties understand what auto-enrolment means, a complicated cost picture will add to the confusion and will diminish take-up figures.

The full letter can be found on the ABI website

First published 23.08.2012

azeevalkink@wilmington.co.uk