Pension trade bodies have published a long-awaited code of conduct on disclosing workplace scheme charges to apply across schemes, providers and advisers.
The National Association of Pension Funds (NAPF), Association of British Insurers (ABI), the Investment Management Association (IMA) and Society of Pensions Consultants (SPC) have published the code, which they claim will promote transparency and increase confidence in the sector.
The code requires that:
- All charges are clearly and accurately stated in writing
- Employers receive a standard template summarising the pension charges levied and the corresponding services
- Employers are about able to see examples of how different levels of charges and charging structures could affect the pension pots of their employees
Advisers will be required to complete a summary of charges document when they have selected an auto-enrolment scheme and discuss the document with the employer.
The total effect of pension charges on a member's pot will be shown using a web tool currently being developed.
The code will come into effect as a best practice guide on 1 January 2013. A second stage starts in April, after the launch of a dedicated web tool, at which point all the provisions of the code will apply.
ABI director of life savings and protection Steve Gay (pictured) said: 'Pension charges have reduced dramatically in recent years but we need to ensure that information is freely available to employers in a format that is concise and meaningful, and helps them to make the right decisions.'
Joanne Segars, chief executive of the NAPF, said: ‘Employers need to be able to see more clearly what is being charged and why. They will then be more likely to pick the best pension for their staff. The code sets out a template for explaining charges that will make it easier to compare the cost of pension A with pension B.’
Tom McPhail, head of pensions research at Hargreaves Lansdown, said the code excluded portfolio transaction costs and stopped short of introducing a single ‘APR-type’ number summarising costs. However he said it was still a ‘credible attempt’ to balance transparency while protecting the value of support services.
Jonathan Lipkin, associate director of pensions and research at the IMA, said: ‘This is the beginning of the road. Much more has to be done to ensure that scheme members themselves feel greater confidence in DC schemes, whether trust-based or contract-based. This means an emphasis on overall governance as much as disclosure.’