Pension fund charges to be made clearerNational Association calls for better disclosure

20 October 2011

What sounds like a small charge can cut your pension income substantially

The National Association of Pension Funds (NAPF) has launched new code of conduct. 

Costly pension charges 

The new code of conduct from NAPF, which represents 1,200 pension schemes with 15m members, calls for providers to express charges in more simple terms in a bid to help cut pension fees. They acknowledged that some annual charges can be 'very high' and its Chief Executive, Joanne Segars, said that 'disclosure in percentage points...doesn't mean anything to the average person on the street'. 

She explained how expressing charges differently could make a difference: 'If you start to see actually that I've been charged £200 this year for managing my pension, where has that money gone and what have they done for that- then that will start to exert a downward pressure of fees and charges.'

Which? Pensions expert, Ian Robinson, says: 'Keeping charges down is particularly important in defined contribution (DC) pension schemes, where individuals have to build up a lump sum to buy an annuity. '

Long-term performance 

The Pensions Minister, Steve Webb, welcomed the new code: 'I am pleased that the NAPF is taking this action because we know how even apparently modest charges can take a big slice out of people's pensions. We are seriously considering capping charges for people who will be automatically enrolled and we have just amended the Pensions Bill in order to extend our power to do so.

Pension funds build up long term returns and are generally less affected by volatility than other investments. Consumers still need to be aware of the impact of charges, however, as these can reduce their final 'pension pot' by thousands of pounds. 

Auto-enrolment, which starts next year, will bring millions of people into DC schemes, so the NAPF initiative is particularly timely. The National Employment Savings Trust (NEST) has set a challenge for other schemes- can they match its low annual charge and will their communications be as user-friendly as NEST?'

More on this...    

Which?  Conversation on investment charges- why they matter and what they cost in the long term

Company pensions explained- employee schemes and how they work

Introduction to personal pensions- pension schemes for individuals and the self-employed