As illegal drugs to your health so hidden charges to your finances
Imagine that you were tasked to prevent drugs coming into this country. Would you
- ask the driver if he had drugs in his vehicle and wave him through if he told you “no”
- set up a random search mechanism to show you were trying
- instigate a robust process that ensured that all vehicles entering the country were checked with deterrents of imprisonment for those found with narcotics.
Of course the answer would depend on how much you wanted to stop the drugs traffic and what your resource was to do so.
It seems that the pernicious effect of hidden charges does to your finances what illicit drugs do to your health.
What is missing is a robust framework to sniff them out and proper penalties against those who sell products that smuggle charges in through non-disclosure.
Putting the momentum of the TTF to good purpose
The Transparency Task Force had its day in the Committee Room 8 of the House of Commons and it had a goodly attendance from policy strategist from the public and private sectors. We heard that part two of the pensions charge cap would be announced in 2017 (though not as expected in Q1), we heard of further delays in the publication of the FCA’s Market Review which is now due to publish a final consultation in H1 2017 and we heard a number of speakers
- Shirin Taghizadeh, Head of Pension Charges, The DWP
- Becky Young, Manager, Wholesale and Inv. Competition, the FCA
- Robin Finer, Head of Department, Competition, the FCA
- Louise Sivyer, Policy Lead, Regulatory Policy Directorate, TPR
- David Pitt-Watson, Executive Fellow, London Business School
- Daniel Godfrey, Independent Director and Advisor (and former Chief Executive of IA)
- Ralph Frank, CEO UK (DC), Cardano
- Margaret Snowdon OBE, Chairman, PAS
- Henry Tapper, Founder, Pension PlayPen
- Peter Glancy, Head of Policy , Scottish Widows
With Government deadlines slipping and with the collapse of anything meaningful coming our of PRIPS , change looks further away than at any time over the last 12 months.
What is needed is a boot up the backside to get consumer interests , rather than the interests of our asset management , platform and advisory industries, to the fore.
The next step is to lobby the DWP Select Committee and its Chair Frank Field.
Here is the letter we intend to send them.
We are a coalition of interested parties looking to help protect the interests of the UK’s pensions-saving public through full disclosure on all the costs and charges they are paying. Hidden costs are damaging because they:-
1. Reduce the net amount pension savers are able to accumulate. Auto enrolment has created an even greater burden of responsibility to treat pension savers fairly and openly. This is a social justice issue.
2. Prevent the market working efficiently; markets need to know true costs to be efficient. The ‘invisible hand’ is ‘being kept in its pocket’ as it were, stopping the public getting the value for money they deserve
3. Inhibit pension scheme trustees and IGCs from carrying out their duties efficiently, because ‘you can’t manage what you can’t measure; and you can’t measure what you can’t see’. This is a governance failure.
4. Lead to adverse publicity. The public’s confidence in the pensions sector is falling; it needs to stop falling ‘below the point of no return’ . There is a serious and systemic risk of this happening
Pension scheme costs are surrounded by complexity, opacity and obfuscation. This is morally wrong, wholly unjustified and of great concern to all saver-centric market participants. Your Committee is uniquely placed to look into the matter in a constructive and inclusive way that will ‘join up all the regulatory dots’’.
In so doing your Committee will encourage the UK’s pensions and investment sector to move out of denial (where that’s necessary) and work supportively with all regulatory bodies to find a sensible set of sustainable solutions that help protect the interests of the UK’s pensions-saving public.
What the DWP Select Committee needs to do
Joining the regulatory dots is perhaps too weak.. we need definite action.
Right now, charges are stowed within the financial products we buy that eat away at the return we can expect to a degree that can make long-term saving unrewarding. A typical advised funds platform established within a SIPP takes 2.6% pa of your money before hidden fund charges. If we add to that the typical hidden charges within an active fund, the total cost of ownership of money on a funds platform can be over 4% pa. With expected long-term returns on real assets running at around 5%, this is clearly unsustainable.
This is the most extreme and egregious waste of wealth and the more effecient fund platforms charge a lot less.
Workplace pensions are capped at an annual management charge of 0.75% pa. But the total cost of ownership can be higher as many intermediaries can levy their costs directly to the fund and by-pass the AMC. Similarly, practices such as stock lending can see profits being diverted from the beneficial owners of a fund to the managers of the fund.depriving the owners of what should be theirs.
There is no body properly checking the vehicles we save into to make sure that charges aren’t hidden in the back of the lorry and we are adopting an “ask the driver” policy. Drivers don’t tend to admit they have drugs on board and pension product providers won’t admit that their products carry hidden charges.
The charge cap (part one) has gone some way to stopping the abuses we see from fund platforms but it has “scotch’d the snake not killed it”. I said in 2014 that the real test of the Government’s intent to stamp out profiteering from workplace pensions was to introduce a proper inclusive charge cap.
The DWP look timid and are allowing timescales to slip. I want the DWP Select Committee to be firm. No recidivism, the charge cap needs to include hidden charges and we need a proper way to police it.