I beg to move,
That leave be given to bring in a Bill to require pension providers to publish standardised information on charges for pension products; to make provision for a cap on such charges; and for connected purposes.
My Bill will introduce greater transparency in the charges applied to pension savings by those who manage them on behalf of the beneficiaries, and introduce a mandatory cap on such charges.
The aim of the Bill is threefold: to drive down significantly the total cost of pension fund management; to achieve better value for money in what is currently a failing market; and to ensure that a higher proportion of pension savings will actually go to help the beneficiaries to achieve a comfortable retirement.
Currently, far too much of people’s hard-earned savings is being siphoned off in hidden charges and costs, and without firmer Government intervention this is likely to get worse rather than better. As a former pensions Minister, no one knows better than me how quickly eyes can glaze over at the merest mention of this subject, but the wellbeing of our society demands that we get this right. Currently, 34 million of our fellow citizens are either paying into or benefiting from pension savings, and the welcome introduction of automatic enrolment has brought millions more into workplace pensions saving for the first time. The automatic nature of this saving means that there is a special duty on the Government to ensure that funds accrued in this way are used to generate pension benefits for savers rather than profits for fund managers and intermediaries.
Despite the welcome cap of 0.75% on costs in these pension funds, it is clear that much more needs to be done. All the evidence demonstrates that this is a failing market. It suffers from information asymmetry for both customers and regulators, it is characterised by very weak if not entirely dysfunctional price signals, and one of its most revealing features is persistent and very high profits for those who supply services, which is the classic sign of market failure.
The pensions being offered are complex by design. Providers are being allowed to conceal many hidden charges that eat away at the individual pension pots in defined contribution schemes, under the noses of their clients. One particular pension product was discovered by consumer champions Which? to contain 44 different charges that could be levied on the fund. Price signals are weak because small, innocuous-looking fee levels can eat up massive amounts of an individual’s savings over time. As the Royal Society of Arts study led by David Pitt-Watson demonstrated in 2012, an annual fee of 1.5% can eat up a massive one third of a pension pot in 25 years.
Despite there being billions of pounds of savers’ money under management, it is not yet possible for any individual workplace saver to find out how much it actually costs them to be a member of their pension scheme, let alone to be able to compare these costs with those levied in other schemes. Thus, astonishingly, when it comes to pension saving it is currently completely impossible to assess the cost of any one scheme against another. It is impossible to make any estimate of what the value for money of any particular scheme will be, yet this decision is crucial to an individual’s future wellbeing and prosperity. Those 13.5 million members now automatically enrolled in defined contribution schemes are trapped in an employer-chosen fund where their only choice is whether to stay or to leave and forgo the valuable employer contribution. That is surely the definition of Hobson’s choice. In reality, it is no choice at all. It is no wonder that the Office of Fair Trading pronounced the pensions market for buyers to be “one of the weakest” that it had analysed “in recent years.” The answer to that problem is not more complexity and faux competition, but transparency of total costs and fees. There should also be a cap on charges.