Guy Opperman
Pensions minister Guy Opperman outlines the government’s plans on how to improve cost transparency for scheme members.
Cost transparency in the pension industry remains one of my top priorities.
We have made good progress and passed a major milestone when regulations kicked in earlier this month which will require occupational defined contribution (DC) schemes to publish details of the costs and charges members pay. And they will have to do so for all to see for free.
This will be done in a phased way, but over the coming year, all occupational schemes will be publishing all the costs and charges associated with the products they offer for the first time.
This is a major step forward, empowering savers to make sensible decisions with their money. But
importantly, it should also go some way to restoring public confidence in the investment management sector, which has been plagued by accusations of hidden costs and poor practice.
Cost transparency is not a silver bullet. It won’t resolve all the issues which our industry faces, but it is an important step which will help pension scheme members understand their investments and the costs that accompany these products. For too long, we’ve argued that members don’t need this information, or that it is too scary or complex for them to understand.
I don’t agree – if I’m taking the investment risk, I want to know what I’m paying. Some people do
struggle with percentages – that’s why we’ve legislated to require an illustration showing the effects of costs and charges, in pounds and pence, over time.
I want the discipline of publishing this information and explaining it to members to get trustees to give more attention to the costs they make members pay.
Costs aren’t the only thing that matters, but they’re one of the things that matters – and unlike investment returns, they’re fairly predictable. There are complexities around the costs of investing.
However, I am clear that if the pension industry is going to build on the fantastic progress
made through automatic enrolment, then it needs to be as transparent as possible.
Simplifying costs and charges across the industry should also help pension trustees gain access to the information they need to do their job – setting and reviewing investment strategies and fund and manager selections.
They need costs in a clear and standardised form produced by the independent Institutional Disclosure Working Group set up by the FCA – something which I remain fully supportive of.
The more light we shine on the industry, the more we can stop this corrosion of trust.
Not only that – we can also drive improvements in the value of services provided to pension schemes, as competition drives some service providers to improve their offering in an open and transparent market, and the potential removal of layers of intermediation which can add significant cost but little value.
It is for these reasons that I’m absolutely committed to cost transparency. This will build on the fantastic progress generated by automatic enrolment, and I am calling on all elements of the pensions industry to join me on this journey.
