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Pensions industry publishes code of conduct on scheme charges

Providers of workplace pension schemes are being asked to consistently disclose the charges and investment costs attached to their products through a new industry code of practice.28 Nov 2012

The Code, which has been developed by industry bodies and pension providers, specifies that all charges should be set out in a standard template, summarising to employers the fees charged and corresponding services. It has been endorsed by bodies including the National Association of Pension Funds (NAPF), Association of British Insurers (ABI), Investment Management Association (IMA) and Society of Pension Consultants (SPC).

"Charges are a big concern for many people, and this code will help put a spotlight on the fine print," the NAPF's Joanne Segars said. "Employers need to be able to see more clearly what is being charged and why. They will then be more likely to pick the best pension for their staff. The code sets out a template for explaining charges that will make it easier to compare the cost of pension A with pension B."

Once the Code is in force, all charges relating to a pension scheme will have to be clearly and accurately stated in writing. Employers must also be able to see examples of how different levels of charges and charging structures could affect how much pension their employees receive, either through a document or through a dedicated web tool, which is currently being developed by the ABI.

The Code will apply to all firms and institutions offering defined contribution pension schemes to employers including insurance companies, trust-based pension schemes, financial advisers and other professionals offering paid advice. It is intended to be used as a non-binding best practice code from January 2013, while all of its provisions will take effect one month after the launch of the dedicated web tool, which is expected to be available from 1 April 2013.

Pensions law expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, said that the new code of conduct would help employers to choose the right scheme for those employees due to be automatically enrolled into a pension scheme.

"As auto-enrolment is rolled out more widely over the next few years, it is crucial that employers choose the right scheme for their employees," he said. "Employees have the option to join or to make additional contributions, but they will be relying on their employer to choose a scheme that will deliver. Charges can have a striking impact on pensions ultimately payable, but the new Code of Conduct does a good job in ensuring that employers can see what the impact of those charges might be."

However, he pointed out that employers had other issues to consider when choosing an appropriate scheme.

"Additional services, range of investment choice and service standards count too," he said. "The summary of charges will be a useful tool to help employers compare what's on offer."

Pensions Minister Steve Webb warned in the Daily Telegraph earlier this year that the Government could introduce measures to cap "sky high" pension charges without industry action. He told the paper that the new Code was a "useful starting point"; however, he remained "prepared to consider taking action more broadly" if sufficient progress was not made on improving transparency on charges.

"We are looking to the whole industry to do the right thing and work together on this and other industry initiatives to improve transparency," he said. "We hope to see the code's widespread adoption and for individuals to be enrolled in schemes with value for money and transparent charges."

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