FCA reverse the tank



It will be getting on for 10 years since the Government asked the OFT to look into workplace pensions. The result of the OFT’s investigation was a firm recommendation that members enrolled into workplace pensions should be given a proper understanding of what the management of their savings was costing them.

Information to be given to scheme members

2.34 We proposed that provider firms must require that scheme governance bodies ensure all scheme members are provided with an annual communication which includes a brief description of the most recent costs and charges information available and how it can be accessed. This costs and charges information should include all the information set out in paragraphs 3.11 and 3.13 of CP19/10.

And we are phasing our rules in and, for the first scheme governance 16 PS20/2 Chapter 2,  and disclosing costs and charges to workplace pension scheme members and amendments to COBS 19.8 year, scheme governance bodies will only have to report costs and charges information in respect of default options/funds, with a deadline for publication of 31 July 2021

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The reasoning is wrong. The complexity “respondents” complain of is of their own making. Workplace pensions only have 300+ fund choices because of demand from fund managers and advisers. This choice is not consumer led

The simplest way to reduce complexity is to reduce these otiose funds from the platforms. Instead , the FCA are sanctioning inefficiency and setting an alarming precedent. How long before other platforms are pointing to this decision to get round obligations under Priips and Mifid.

Who’s risk is it anyway?

In days gone by, the cost of managing money was borne by employers through the funding costs of DB plans. Many occupational DC plans (RBS and Lloyds Banking Group’s for example) pick up these costs as an employee benefit. But this hospitable practice is a rarity.

For the most part, the costs of workplace pensions fall to members and so the risks they bring. Over a savings lifetime, a 1% pa charge can reduce a retirement pot by a quarter.

Put another way, each 0.1% on the management costs is equivalent to a lifetime loss of pension of 2.5%. Imagine that as a salary cut – for the rest of your life.

If you want an example of what I’m talking about, look at the costs incurred by Fidelity’s default fund

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There is another way to see the impact of charges, it is by comparing the internal rates of return achieved on savings and comparing them with the return on the default. The research AgeWage has conducted suggests that IRRs are higher the lower the transaction costs. It is unsurprising that we meet considerable reluctance from workplace GPP and GSIPP providers  to sharing data.

Difficult to digest

These numbers are taken from Fidelity’s 2018 IGC report, they show that the costs incurred by savers in Fidelity’s default workplace pension fund were around 0.30%.

The built up impact of this 0.3% pa cost is around 7.5%, a 7.5% life time pay-cut on top of whatever Fidelity was charging you as a stated charge.

The impact of these horrible hidden costs were not laid out in the IGC report, indeed the costs attracted no comment from the IGC chair.

As far as I know, the FCA have not made any comment either.

The only person who has picked up on these horrible numbers is me. I wrote about them at the time and I wrote about them again in 2019 and I hope I don’t have to write about them in 2020 (though I probably will).

Disclosure is not enough

Hidden charges will stay hidden if they are tucked away in a report that nobody reads and nobody comments on. These costs are not justified by extra value created by Fidelity’s funds, they are simply ignored.

The key thing for savers is that they are confident they are getting value for money, but can they trust they are getting VFM if they aren’t told what is going on?

It is good that , after all these years, the FCA is gearing providers up to tell policyholders what they are paying and getting for the money they have saved.

But after all this time, we can expect that those paid to provide independent governance are taking action on our behalf to ensure that all this money translates into value.

It is after all the savers who are taking the risk, not the IGC and certainly not the provider.

Why disclosure is in reverse.

The headline of the FCA’s policy statement PS20/02  may be the concession not to require disclosure of transaction costs on all funds offered on a workplace platform.

But the opportunity missed is to make disclosure effective. This paper, which puports to be a policy statement shows the FCA in retreat, the tank is going backwards, the target is receding and the consumers wha are supposed to be protected by their IGCs will have to wait years longer to get what was promised them all those years ago.

All is not lost. We may still get simplified pension statements that detail costs and charges. We may get a proper paper on value for money before the end of the summer. But right now, if savers want to know what is happening with their pensions, they are going to have to read my blog, follow Jo’s tweets and hope for better.

Disclosure is in reverse because the consumer lobby is too weak, the ABI too strong and the FCA has lost its mojo.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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