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Pension firms to release charges that can cost individuals up to 40% of their pension

As 11 million workers are expected to sign up to a work pension, from summer 2014, new savers participating in employers’ auto-enrolment pension schemes, NEST Pension, will automatically receive standardised disclosure of annual charges and transaction costs.

Under an agreement struck by the Association of British Insurers (ABI), 14 big pension providers will provide “consistent and straightforward disclosure of pension charges and costs”, and agreeing to spell out the true cost of previously hidden commissions and fees which can wipe up to 40 per cent from savers’ nest eggs. This means that the choice of which pension scheme to invest in becomes even more important to individuals.

Guardian Wealth Management has advisors for both business and individual clients to help you work your way through the thousands of schemes available, including NEST pensions, to find the most effective solution for you.

Insurance companies have been accused for years of hiding the cost of pension charges, which include annual fund charges to hidden commissions paid to brokers. Firms currently express charges as a small percentage of the pension fund, typically around 1.5 per cent per year, meaning it is almost impossible for savers to keep track of what they are actually paying.  They also fail to disclose fees, such as overheads incurred by fund managers including tax, stamp duty for buying and selling shares.

The agreement will be implemented by summer 2014 for all pension schemes set up as a result of auto-enrolment. The same disclosure regime will apply to older pension schemes from the end of 2015. The ABI said it is possible that some member firms will be able to comply earlier, but that a three-year window is needed to upgrade systems.

Under the disclosure agreement, providers will be required to:

Disclose to employees the total charges from the outset, to a standard definition, across contract and trust-based workplace pension schemes, including any entry or exit charges.

Disclose the total charges taken in the previous year. The intention is that this will be expressed in pounds, either the exact amount or a rounded figure.

Disclosure of the previous year’s investment transaction costs.
Firms will also have to list any costs up front to savers taking out a pension, including fees for joining or leaving a scheme.

For smaller firms having to auto enrol staff onto a NEST pension scheme by 2018, this may be an ideal opportunity to investigate the most appropriate schemes.

Whether an individual or a business, for information on deadlines and support on what NEST could mean for you, please contact one of our advisors or visit our new NEST pension page on our website.

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