ShareAction welcomes an auto-enrolment charge cap, improved governance standards for occupational pension schemes and the introduction of Independent Governance Committees for workplace schemes, measures which it has been campaigning for on behalf of savers for years. The charity will watch all of these developments carefully, to see whether they do truly provide the oversight needed to protect UK pension savers.
The reforms, which come into effect on April 6, are intended to address the findings of the Legacy Schemes Review which found that £25.8 billion of savers’ assets are trapped in schemes with high charges and ensure that the millions of people now saving into workplace pensions without having made an active choice thanks to auto-enrolment are properly protected.
ShareAction welcomes the Government’s reforms but suggests they could go further to ensure the financial services industry rebuilds the trust of pension savers, particularly in workplace schemes. It has listed five areas where more could be done to prevent people being ripped off in the future.
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The changes provide an override clause for some trustee boards so that they are not locked in to using one investment provider, and can move members’ assets out of underperforming vehicles. But it remains to be seen whether governance boards of occupational schemes are sufficiently independent of the pension providers to up sticks and move their money.
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All large contract-based pension providers must establish Independent Governance Committees to represent the interests of all members and assess their ongoing value for money. ShareAction is concerned that these committees are not independent enough from the scheme providers, and will carefully watch their performance to see if its doubts are well-founded.
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A charge cap of 0.75% for all auto-enrolment default funds comes into being on April 6 but members in non-default funds are still not protected and the charge cap does not cover investment transaction costs, which can be substantial. ShareAction hopes the FCA and Department for Work and Pensions upcoming review of charges delivers on this score.
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New governance requirements have also been introduced for occupational schemes, but ShareAction is disappointed that there is no requirement for savers to be represented in the new structures, as is the case in the countries with the best performing pension systems. Many trusts are too small to provide good value for money or effective governance, particularly in comparison with other countries like Australia, which, through regulatory intervention, has seen consolidation of more than 5,000 schemes in the 1990s to fewer than 500 at present. ShareAction feels the Government should now take decisive action to encourage similar consolidation in the UK market.
ShareAction chief executive Catherine Howarth says:
“Members of workplace pension schemes have been getting ripped off for too long. It remains to be seen whether those charged with looking after savers’ interests are sufficiently independent to stand up to the commercial interests of firms running rip-off schemes. Furthermore, if the Government is serious about providing a pensions system that delivers real returns for regular savers instead of Lamborghinis for the people running the money, then a bolder effort needs to be made to include savers in pension reform as we move into the future.”
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