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IMA calls for cost clarity to encourage pension savers

by Brian Cantwell on Feb 19, 2013 at 16:23

IMA calls for cost clarity to encourage pension savers

Pension charges need to be made simple and transparent to ensure employees do not opt out of auto-enrolment, according to Jonathan Lipkin, director of public policy at the Investment Management Association (IMA).

Lipkin (pictured) said providers must express charges in a more consistent way to help employees understand what they are paying and not put them off engaging with pensions.

‘There must be meaningful transparency and consistency in the way these charges are made,’ he said. ‘We have to move away from arguing about complications.’

Speaking at the Westminster Employment Forum auto-enrolment conference, Lipkin said there was a risk the government was relying on employees’ inertia to make auto-enrolment a success, and that more needed to be done to make pensions better understood.

His views were supported by Hari Mann, director of the Tomorrow’s Investor programme at the Royal Society of Arts, who said: ‘Complexity is what turns people off saving, people don’t understand what they’re being charged and what the cost is going to be.’

Mann and Lipkin agreed that the government should put the onus on employers to educate scheme members about auto-enrolment and the charges involved.

Jamie Clark, Scottish Life business development manager, said the government had made a good start to boosting public awareness of pension reform, but it still needed to inform consumers about minimum contributions and the importance of financial advice.

‘The 8% minimum [contribution] rate will eventually be understood and should, [in fact] must, increase,’ he said.

‘When it comes to advice, someone has to pay for it and as long as the scheme delivers, consumers will be satisfied.’

8 comments so far. Why not have your say?

Jonathan Kirby

Feb 19, 2013 at 13:19

Unfortunately people are so convinced that pensions are some form of con being worked on them by the government and industry, a vast number will opt out as their retirement plans don't involve making any provision as they will have won the euro-millions.

No amount of clarity or simplicity will change this.

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A Childs View

Feb 19, 2013 at 14:42

And Investment Fund pricing is so simple is it? Pah!

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Feb 20, 2013 at 07:19

Opt-out rates are apocryphally quite low from the current AE'ed propulation so it may be that the battle is already being won

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Julian Stevens

Feb 20, 2013 at 09:13

To TheFuture ~ According to the Oxford dictionary, apochryphal means of doubtful authenticity, although widely circulated as being true. Perhaps you meant anecdotally, though even that probably isn't quite right, meaning as it does: not necessarily true or reliable, because based on personal accounts rather than facts or research. Some firm data might not go amiss.

That aside, I agree with Jonathan Kirby's observation as to why the public regards tax-assisted retirement saving with such antipathy. It has little, if anything, to do with charges. The biggest single issue is the annuity rates trap that awaits at the end of the day. Having drawn your TFC entitlement (and we can only guess at how much longer it's likely to be before the government axes that as well), the balance of your fund, for most people, has to be given up to secure a taxed income at a rate of no more than 5% p.a. of its value, and that without any inflation-proofing. What's remotely attractive about that?

The government surely knows that the annuity rates trap is the primary deterrent to retirement saving. It knows that this should be its top reform priority. Yet still it continues to talk about everything and anything but, mainly through its glove puppet pensions minister Steve Webb.

The only reason that opt-out rates may remain low is simple inertia. It has nothing to do with any sort of confidence in auto-enrolment into workplace retirement savings schemes.

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Feb 20, 2013 at 09:40

ENOUGH ABOUT PRODUCT CHARGES! The public actually don't care even if the pension plan had no charges! Provided an employer can provide a reasonably competitive and flexible plan that is all they want. The trick is the delivery of the EDUCATION, EDUCATION, EDUCATION. If they understand it they will/do engage. Following RDR the big question is: Who do we get to pay for this and how?

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Charles Rickards

Feb 20, 2013 at 09:52

The only way to get greater public interest in pensions is to make them a must have accessory! This comes down to very good marketing and education. How many homes have Apple products? No one needs them, but most want one! The transparency and charges argument is weak as most consumers look at the 'what's in it for me?' rather than 'how does it work?'

If pension funds always produced great results, the 'man in the pub' would be saying 'I have this great pension!' and all of his mates would want one.

So I challenge the fund managers to run great funds,, that investors will want to brag about!

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Richard Hardy

Feb 20, 2013 at 14:56

Whilst pensions remain a political punchbag can you blame anyone who doesn't save via this savings vehicle?

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Feb 20, 2013 at 15:08

@Julian, either work for me

@CharlesR, you are spot on!

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