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Calls for ‘compare the market’ pension costs

Investment costs paid by pension scheme members should be made easily comparable to achieve value for money for savers, according to the chief executive of The People’s Pension.

Speaking at the Pensions and Lifetime Savings Association conference in Manchester today (19 October), Mr Patrick Heath-Lay said that the debate about pension costs and returns has already moved into transparency, but now needs to go a step further.

He said: “If you bring visibility into the costs within the system you also need to make it comparable, in order to genuinely draw value.

“At the moment, even how the charges are leveraged on pension schemes themselves are not comparable, they’re not in a standard format, they’re not even in a set prescribed way.

“I think we will need to go back to that agenda at some point, because simply disclosing information doesn’t make it understandable.”

In 2013, the Office of Fair Trading found that around £30bn of assets under management in both contract and trust-based defined contribution (DC) schemes were “at risk of delivering poor value for money” by charging members more than 1 per cent.

Three years on, the Financial Conduct Authority (FCA) and the Department for Work & Pensions found that just over two thirds of the schemes delivering poor value had either brought their fees down to 1 per cent or less, or were on the way to doing so.

Last December, the FCA said that DC pension providers were making “good progress” on fee reductions.

Mr Heath-Lay argued that the disclosure of information was very helpful for providers.

He said: “We have been quite relaxed as an industry in accepting investment managers do certain things for returns without actually looking under the bonnet too much.

“But if we can bring visibility to that, we can then have sensible debates on how we can put together good journeys for people that are cost effective and returning good value as well.”

He also advocated that cost and return basic elements need to be aligned in the right way to allow a true comparison across the industry.

This is one of the PLSA proposals in their retirement outcomes consultation, which is also suggesting the creation of new national retirement income targets.

The pensions body said: “In order to make the assessment of value for money more straightforward, we believe the industry should develop a series of clear and consistent metrics that cover all elements of performance.”

Where pension schemes do not deliver value for money, “they should consider whether they can improve their performance or if it would be better to transfer members to another scheme and wind up,” the document added.

The PLSA is also suggesting that The Pensions Regulator should support and encourage the adoption of rigorous assessments.

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