Self-regulation will not stop pension rip offs, say MPs

9 Aug 19

Self-regulation will not stop the pension industry “ripping off” customers with hidden charges and the government must step in, say MPs.

In a damning report, the Commons Work and Pensions Committee has called for mandatory transparency rules of the pension industry and criticised the “complacent” evidence on failings in the sector provided to them by ministers.

The MPs said they were “unconvinced” that the industry will rise to the challenge of providing clear, transparent information to pension schemes about the costs and charges of investments.  

“Ripping off pension savers could be eliminated,” said Frank Field MP, the chair of the committee.

“The select committee is calling on the government to shine the searchlights into that part of the financial industry that has settled down to misinforming, mischarging, overcharging and making a fat living off the hard-earned savings of pensioners.

“Government and regulators should not wait for the industry to fail to act voluntarily as they have so many times in the past. It must put the full force of the law behind such changes.”

In its latest report, released on Monday, the Work and Pensions Committee has said the government and regulators should legislate for mandatory disclosure according to a set format by both defined contribution and defined benefit schemes of the costs and charges of pension investments. 

Ministers should not wait for the industry “to fail to act voluntarily as they have so many times in the past” in order to ensure better scrutiny of value for money.

The MPs said compliance with the new mandatory disclosure regime should be overseen by regulators, and scheme members should have information on value for money, exit charges and other costs associated with the transfer of their pension pot. 

The Financial Conduct Authority should explore the creation of a public register of asset managers’ record of compliance with reasonable data requests. 

The inquiry found that some pension fund trustees are making investment decisions without knowing the true costs that they are incurring and that asset managers are often unwilling to disclose all the costs attached to each investment.

The committee also turned its fire on efforts to tackle scams in the sector – with reports suggesting £2bn was lifted out of pension savings by unscrupulous advisers in one year alone – and voiced concern that the FCA’s dedicated scams team only consisted of 10 people.

MPs said the FCA should review whether it dedicates sufficient resource to combat active pension scams, prevent new scams and protect individuals.

“Scams are not a necessary consequence of the pension freedoms,” the report stated.

The committee has also pointed out that the creation of a non-commercial pensions dashboard would be a welcome – if overdue – additional tool to provide transparency to individuals and help them plan how they use their pension funds.

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