The government is set to instigate a revamp of their current Pension Bill, which will see pension fund managers having to be far more transparent about the investment costs that come along with the product they are offering.
The changes will apply to individuals who are signed up to ëdefined contributioní pensions, and is monumentally positive news for savers across the UK, who have often suffered from overpaying on their pension pots due to a lack of clarity on hidden costs when signing up to workplace pension schemes.
Pension Minister Steve Webb heralded the changes as a breakthrough occurrence in the pension industry, and promised to ëensure consumers receive value for money from their pension savingsî.
“For the first time, we are shining a light into the murky corners of the pensions industry to make sure savers know what is happening to their money,” he said.
“A lack of transparency around the true costs of trading can prevent schemes from securing value for money for their members.”
The primary changes that are set to be enacted are to do with investment costs that come along with workplace pension schemes, which were identified by the Office of Fair Trading last year as being supremely unfair on the finances of contributors.
Last year, the Office of Fair Trading conducted a comprehensive investigation into the nature of workplace pension schemes, and concluded that tens of thousands of payers have been detrimentally affected by the hidden costs attached to pension pots.
These costs include the cost of buying and selling investments, stamp duty charges, bank transaction fees, broker commission fees and foreign exchange charges, which are typically taken straight from investorís pension pots without being clearly identified to them in the first place.
This is despite the fact that most employees are automatically placed onto the scheme when they start their job, and are required to make monthly contributions from their salary towards their pensions.
The Office of Fair Treading argued that whilst these small sub 1% charges cost savers very little in the short term, that over the long term they decrease the size of the pension pot available to the contributor substantially.
“For instance, a 0.5% annual management charge (AMC) over an employee’s working life can reduce the overall value of a scheme member’s retirement savings by around 11%, whereas a 1% AMC can reduce retirement savings by around 21%,” the OFT calculated.
The OFT also argued that a number of administrative costs attached to pension pots have been unfairly lowering the funds available to savers when they retire, which include the costs of investment management services, advisory costs and other management costs that come along with investment strategising.
And the Pensions Minister Steve Webb has promised to implement a cap on the level of charges that can be levied on one person over the course of a year, in a bid to help future pensioners save thousands on their savings.
However, the final details of this cap have yet to be announced, with further discussions expected in the upcoming months.
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