Pension costs and transparency Contents


1.Transparency about costs, investments and choices has long been a cause of concern for the pensions industry, both for individual savers and for those managing pension schemes. The Government and regulators show welcome signs of being alert to these concerns and are making positive steps towards remedies. Nevertheless, there remains some way to go.

2.For individuals, recent years have seen a rapid rise in enrolment in workplace pension schemes, creating millions of new retirement savers. The pension freedoms, introduced in April 2015, gave people aged 55 or over far greater freedom over how they access their defined contribution pension pots. These freedoms have spurred a sharp increase in demand for drawdown products, and there has also been a surge in transfers out of defined benefit schemes, with funds principally moving into self-invested personal pensions (SIPPs). Our report on the British Steel Pension scheme found that scheme members were ‘shamelessly bamboozled’ by advisers and the unregulated introducers who set up the appointments into signing up to ongoing adviser fees and unsuitable pension products and investments, characterised by high investment risk, high management charges and punitive exit fees.1

3.These developments have intensified concerns about the effect of investment management charges, transaction, advisory and other intermediation costs, in eroding the value of individuals’ savings. These are part of broader concerns that low levels of customer engagement and understanding, coupled with costly and opaque intermediation, risk leading to poor outcomes for pensioners.

4.The governance arrangements for pension schemes vary across the industry. Many schemes are governed by trustees, who may be individuals or organisations. The experience of trustees ranges from professional trustees acting for many schemes to member or employer nominated trustees often acting for only the one. Trustees have a duty to act prudently, responsibly and honestly, as well as impartially in the best interest of the scheme’s members.

5.Trustees and others managing pension schemes need transparency to understand the costs of managing the funds they are responsible for. It is important for those groups to demonstrate whether or not they are delivering value for money in a way which can be compared across the industry and is accessible to the scheme members. But our inquiry has found that some trustees simply don’t know the true scale of the costs that they are incurring.

6.Against this backdrop, we asked the two Ministers responsible for these policy areas to give the pensions industry a mark out of ten for transparency. The Economic Secretary to the Treasury gave the industry a score of seven out of ten2 and the Minister for Pensions and Financial Inclusion a score of eight.3

7.There should be no cause for the complacency about the pensions industry’s performance on transparency that was evident in the ratings the Ministers gave it. We are not convinced that any part of the industry scores above half marks on transparency.

1 Work and Pensions Committee, Sixth Report of Session 2017–19, British Steel Pension Scheme, HC 828, February 2018, para 50

Published: 5 August 2019