Pension fund managers face fresh call to disclose all charges


MPs are calling for further pressure to be placed on pension fund managers to reveal the full extent of their charges on investors.

Conservative MPs David Mowat and Nigel Evans are among the signatories of a letter to accountancy watchdog the Financial Reporting Council (FRC) calling for full disclosure on charges, the Financial Times reports.

Transaction costs are among the charges managers "omit", according to the letter.

The paper reports MPs are particularly worried about four types of charges: profits taken by traders; transaction costs on underlying funds; profits made when funds lend stock; and interest retained by fund managers on cash balances.

Such hidden costs may prompt some savers to opt out of workplace schemes into which they have been automatically enrolled, the MPs warn. Pensions minister Steve Webb has proposed a 0.75% cap on auto-enrolment fees.

The FT reports the letter calls for the FRC "to ensure that the accounting standards employed by fund managers are accurate and fair".

"A . . . regime that claims to disclose transaction costs but omits major types of transaction cost does not meet these requirements."

Providers warn MMR will hit equity release market


Equity release providers have warned the sector will be hit by rules under the Mortgage Market Review requiring firms to assess affordability.

Under the MMR, due to be implemented in April, lenders will have full responsibility for assessing affordability, including verifying income for all applicants.

Equity release providers say the affordability rules will apply to equity release plans where interest is paid by the consumer on a monthly basis, rather than rolled up and paid at the end of the term.

While the majority of plans roll up interest, more than half of Stonehaven’s clients pay interest monthly, and More 2 Life offers a monthly interest option on one of its three products.

Stonehaven managing director Georgina Smith says affordability assessments represent a major change.

She says: “We are trying to do this without adding cost for the consumer but I cannot say for sure it will not because it involves so much work.”

She says the FCA has also told Stonehaven that where a borrower’s child or other third party opts to pay the interest, affordability must be assessed on both them and the third party.

Stonehaven says an interest payment for a typical customer would be £250 a month.

More 2 Life managing director Dave Harris says: “We already ask basic questions around income, but we will be further enhancing that in the run-up to the MMR to ensure we fully assess affordability.”

Plan Money director Peter Wright says: “It is positive that the equity release market offers flexibility on interest payments and I hope these rules do not restrict customer choice unnecessarily.”

Government outlines 'defined ambition' pension proposals


A new category of pensions which would give employees some certainty about how much they will retire on, but be cheaper for employers to run than traditional final salary schemes, has been outlined by the government.

In recent years, firms have been closing final salary (or defined benefit) pension schemes as increased life expectancy, high inflation and poor investment performance have made it increasingly expensive for them to offer retired workers a guaranteed payout based on their earnings.

In May, a report by consultancy firm Towers Watson found that more than a quarter of FTSE 100 firms had closed the schemes for all workers, and that the accelerating pace of closure could mean they were all closed within a decade. The government's own figures show that across the UK just 841 final salary schemes remain open.

Most firms have replaced them with less generous defined contribution schemes, where the eventual payout is based on the performance of the funds in which the scheme is invested, and so the risk is passed from the employer to the employee.

These are typically the schemes used by employers when auto-enrolling workers into pensions, under the government scheme which will see up to 9 million new savers signed up over the next five years.

To encourage businesses to offer pensions with more certainty about payouts, the government has proposed "defined ambition" schemes, which would split the savings risk between workers and their employers.

It has also outlined possible changes to rules around final salary schemes to make them cheaper and easier for companies to continue to offer them.

"Final salary pensions have been in long-term decline, and if we do not act could disappear altogether," said Steve Webb, the minister for pensions. "We want to help the best employers offer good alternatives, including new forms of salary-linked pensions.

"Our proposals for defined ambition pensions are designed to reinvigorate workplace pensions, providing people with more certainty about what they will get in retirement."

A range of suggestions as to how this could work are outlined in a consultation paper, Reshaping workplace pensions for future generations, including a "money-back guarantee" to ensure that the amount of money someone gets out of a pension scheme at the point of retirement or transferring out is not less than what they paid in.

The document said that while the probability of having to put this guarantee into action would be "close to zero" for a long-term retirement saver, it could have "real value" when someone needs it.

An alternative suggestion was for "retirement income insurance" which would be bought gradually from a worker's fund as they approached retirement and would pay out a guaranteed minimum income if their investments failed to perform.

It also outlines the possibility of collective defined contribution schemes, which pool workers' assets. When people using this type of scheme retire they take their income from the asset pool rather than buying a retirement income with their pension pot as they would with a traditional defined contribution scheme.

Raj Mody, head of pensions at consultancy firm PwC, said the proposals had a lot of merit, "but the stumbling block will be whether companies have the appetite to provide these types of pensions. Regular revisions to pension rules have left employers disillusioned, with little appetite to take on any more risk than they need to."

Mody warned that the cost of providing any kind of guarantee on a defined contribution scheme "could be both expensive and prohibitive for employers and providers", and said there could be more value in educating members as to how the schemes work and the risk and rewards that come with it.

The consultation paper also suggested that removing statutory requirements for employers to raise pensions in line with inflation could encourage them to continue providing final salary schemes.

This suggestion was criticised by Laith Khalaf, head of corporate research at IFA Hargreaves Lansdown, who said it would introduce uncertainty for savers and could mean they lose out on a huge amount of money. He gave the example of a £10,000-a-year pension which, without inflation increases, would add up to £250,000 over 25 years, but if inflation was at 2% a year would add up to £320,000.

"Under this new proposal workers could save diligently throughout their lifetime, only for the rug to be pulled out from under them at the last minute," he said.

Equity Release Council comments on The Office for National Statistics' latest Wealth in Great Britain figures on inheritance


Nigel Waterson, Chairman of the Equity Release Council, says:

“With almost a fifth of an estimated £70bn in inheritance deriving from property wealth in Britain, it is clear that this asset remains a vital element when it comes to planning your children and grandchildren’s inheritance. For many of us, it is important that we leave something behind for our loved ones, but with the cost of living soaring and our savings dwindling rapidly, this is becoming increasingly difficult.

“As house prices continue to rocket across the UK, with the average over-55 owning a home worth £230,862*, property wealth through equity release can help those in current economic hardship and also allow you to access funds to help family and friends. An increasing number of people are moving away from the idea of a traditional inheritance, instead, giving money to younger family members to help them pay for university or get their foot on the property ladder. If you would like to know that you are leaving something behind for them after you’re gone, some equity release products now also allow you to ring-fence a portion of your estate.

“Before entering any long-term agreement and inheritance planning it is crucial that you always seek expert, independent financial advice to help you make the most of your property wealth."

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