An inquiry into the cost and transparency of pensions has been launched by the Work and Pensions Committee.
The cross-party group of MPs wants to establish whether the pensions industry is providing savers with sufficiently clear information about investment strategy, performance and charges.
In addition to ensuring savers get good value for money, the committee also wants to know that consumers understand what they are being charged for and why, and what the impact of these costs are on their eventual retirement income.
Furthermore, it wants savers to be sufficiently engaged with their pensions so that they take on board information provided on investments and charges to make informed decisions.
Plus, when savers speak to financial advisers, the committee wants to ensure that they are getting good value, impartial advice.
An earlier report from the Select Committee into the British Steel Pension Scheme found that its members had been ‘shamelessly bamboozled’ both by advisers and unregulated introducers into transferring out of their defined benefit pensions into risky investments with high management charges and exit fees.
The committee expresses concerns about advisers operating on a ‘no transfer, no fee basis’. This so-called contingent charging creates a conflict of interest because advisers are effectively incentivised to recommend a transfer otherwise they won’t earn a fee.
The work the committee has conducted on defined benefit (DB) transfers also raised concerns on the fee structures for self-invested personal pensions (Sipps) – the destination for many transfers. It says poorly advised savers are at risk of moving money into pension platforms with high ongoing charges and early exit fees.
Commenting on the inquiry, Tom Selby, senior analyst at investment platform AJ Bell says: ‘The Financial Conduct Authority has already turned up the heat on platforms over costs and charges, zeroing in on the amount of money firms make for every pound of client money invested. Now MPs are set to make providers sweat as part of a broader drive to ensure savers are able to squeeze every last drop of value from their pension pot.
‘This is absolutely the right focus and we look forward to engaging with the committee as it digs into this important area. While cost is clearly only one component of value for money, it is a critical component and can have a huge impact on retirement outcomes over the long-term.’
He adds: ‘We also welcome the committee’s focus on engagement, which remains far too low among savers both while they are saving and as they enter retirement. In the wake of the pension freedoms there is significant room for simplification of the information providers are required to send to savers. These documents often run to 30 pages or more of complicated and confusing information which very few people pay any attention to.’
This article originally appeared on our sister website Moneywise.