Parts of the pension industry are making a “fat living” from the hard-earned savings of consumers and their charges should come under tougher scrutiny, MPs have urged.
The Work and Pensions Committee said it is “unconvinced” that the industry will rise to the challenge of providing clear, transparent information about the costs and charges of investments.
Funds should be obliged to show costs in a uniform template, with mandatory disclosure in a set format for both defined contribution (DC) and defined benefit schemes (DB), it said.
Better scrutiny of value for money in DB schemes will also either justify or avoid the need for the often difficult decisions being taken about the future of those schemes, the committee argued.
Frank Field, chairman of the committee, said: “Ripping off pension savers could be eliminated.
“The select committee is calling on the Government to shine the searchlights into that part of the financial industry that has settled down to misinforming, mischarging, overcharging and making a fat living off the hard-earned savings of pensioners.
“Government and regulators should not wait for the industry to fail to act voluntarily as they have so many times in the past. It must put the full force of the law behind such changes.”
The committee said its previous report on the British Steel Pension scheme found scheme members were “shamelessly bamboozled” by advisers and the unregulated introducers who set up the appointments, into signing up to ongoing adviser fees and unsuitable pension products and investments, characterised by high investment risk, high management charges and punitive exit fees.
It said: “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.
“These are part of broader concerns that low levels of customer engagement and understanding, coupled with costly and opaque intermediation, risk leading to poor outcomes for pensioners.”
The committee said it is important for trustees and others managing pension schemes to demonstrate whether or not they are delivering value for money in a way which can be compared across the industry and is accessible to the scheme members.
But its inquiry found “worrying evidence” that some trustees are making investment decisions without a clear understanding of the costs.
The committee said: “It is near impossible for investors to figure out how much their investments are costing them because additional costs are hidden and too high”.
It said the Department for Work and Pensions (DWP) should review charging structures in 2020.
The committee said that with the latest reports indicating that £2 billion was lifted out of pension savings by unscrupulous advisers in one year alone, it has been concerned to hear that the Financial Conduct Authority (FCA)’s dedicated scams team only consisted of around 10 people, out of 3,700 FCA staff.
The FCA should review whether it dedicates sufficient resources to scams, it said.
It said the Government should also publish a timetable by the end of this year for the roll-out of a non-commercial pensions dashboard.
The industry has been working on the development of a dashboard allowing savers to see all their pension pots in one place.
The committee said the pensions dashboard should also feature retirement income targets to ensure the information is meaningful to its users.
Rob Yuille, head of long-term savings policy at the Association of British Insurers (ABI), said: “Of course consumers deserve to be given clear and useful information about pension costs and charges and ABI members already meet all extensive regulatory requirements on disclosure.
“Unfortunately this confusing patchwork of rules makes the information presented harder to digest for consumers.
“We suggest the committee joins us in calling on the Government and regulators to better align these muddled regulations in their joint work, to ensure that customers receive key information in an easy-to-understand format.”
A DWP spokesman said: “We have taken decisive action to limit charges and make the costs of saving into a pension more transparent.
“We capped charges for millions of people saving through automatic enrolment at 0.75% and we legislated to ensure that all costs are set out to savers alongside their annual statements.
“We’re backing pension dashboards and expect the first models to be ready for testing later this year.”
Baroness Ros Altmann said: “Displaying prices clearly for customers should be one of the most basic elements of a product sale, yet in pensions it seems to be an ‘optional extra’.
“Currently, firms can decide how to display and structure their charges.
“This is like shoppers going into a supermarket and seeing similar-looking products on the shelves, but the prices are hidden.
“How would they decide which to buy, or know how much they will have to spend?”
An FCA spokeswoman said: “As the FCA explained in the letter to the committee, the number of people working on pension scams is far greater than 10.
“Whilst there are 10 full-time dedicated permanent staff working on this, overall we currently have over 100 full-time staff working on pension issues, including pensions scams.
“This includes the specialist supervision team, the pension scam intelligence team, the whistleblowing team, the firm and customer contact centre, as well as other areas around the FCA.”