The Department for Work and Pensions (DWP) wants to improve the disclosure of costs and charges to defined contribution (DC) members and will consult on this in the future, policy manager David Farrar (pictured) says.
Speaking at Retirement Planner’s sister publication Professional Pensions’ DC Conference on 5 September, he said the current situation “doesn’t look particularly coherent or perfect” whereby trustees and independent governance committees (IGCs) have a duty to ask about transaction costs, but asset managers governed by current Financial Conduct Authority (FCA) rules have no duty to provide that information.
Members are able to obtain information on the levels of charges and transaction costs - as far as trustees can obtain them – but only on request. Trustees have duties to respond to members if asked, but the information members receive will be “partial and incomplete” as there is no equivalent duty on asset managers to disclose it.
It comes as the FCA is soon due to publish final rules for asset manager disclosure to DC pension scheme trustees on investment charges and transaction costs.
Noting this, Farrar went on to say: “We want to get to a position where trustees have to tell members where the information on costs and charges can be found, and the members can go find the information on the web.
“We’re mindful of the fact that we don’t want to damage the success story that is auto-enrolment (AE), but from a member’s point of view whether they’ve been auto-enrolled into a workplace pension or are in an occupational pension scheme, they will still think they are taking out a financial product, and ought to be told what the costs and charges are.
“But we’re mindful that we want to do this in a low burden way for trustees and that doesn’t push this information right into members’ faces so they start to wonder why there appear to be no charges in the past and suddenly there do appear to be charges. This is the tightrope we’re walking.”
He added the DWP would consult on this “at some point in the future”.
It comes as the 0.75% charge cap in default funds, which currently excludes transaction costs, is under government review to see whether the cap should include some or all transaction costs. Farrar said the DWP will deliver on this by the end of 2017.
Plans are still underway to give members more information about how their pensions are invested, after the DWP issued a call for evidence on this a couple of years ago, and will respond “in due course”.
“Members have very little statutory right to this information. Although we’re aware many trustees do actually tell them, where trustees choose not do, there’s very little members can do to correct that,” he added.
“Members do have a role to play in improving investment decisions as well, and as with other financial products it’s reasonable that members on request should be able to look under the bonnet and find out more about them.”
Brexit will constrain
Brexit is clearly having an impact on what the DWP can do, with Farrar saying it will “constrain our ability to legislate”.
The Queen’s Speech includes 27 bills and draft bills. This includes nine bills that are directly or indirectly related to Brexit, 15 other pieces of legislation including the Finance Guidance and Claims Bill, and three separate finance bills.
“That significantly limits our ability to introduce new pensions primary legislation and secondary legislation,” he said.
“Even legislation that doesn’t need to be debated still has a parliamentary time and workload as there are still committees that review it. I wouldn’t expect that frantic pace of three packets of regulations and one bill to be maintained for the next year or so.
“Although the industry probably thinks ‘hallelujah’, for the things you want us to do we may be slightly constrained.”
Farrar also confirmed:
- DWP plans to consult this Autumn about implementing the new master trust framework which comes into force in October 2018
- DWP still does not have timetable for implementing cold calling ban, which it recently confirmed amid increasing evidence of pension scams
The post DWP hints at ramping up cost disclosure in DC; plans to consult appeared first on Retirement Planner.