Debi O’Donovan: Better disclosure is needed on pension charges

There are plenty of ways that employers can offer benefits for free. But many are not making the most of this opportunity. Our Employee Benefits/YouGov Research 2012 showed human resources managers do not rate discounts on their own organisation’s products very highly. But the same research reveals that offering these has a significant impact on employee happiness and their commitment to the organisation. The same applies to discounts to other organisations’ products.

Given that only 10-15% of staff in the survey said they received such discounts, employers are missing a low-cost trick here. But these are not the only sources of cheap perks, so we got our senior reporter, Jennifer Paterson, to dig up more examples (see Low-cost add-ons boost value of benefits).

Following the cost pressure theme, austerity and the incoming pensions auto-enrolment rules are coinciding to create a perfect storm of debate around pension charges. Opinion is sharply divided between those who believe charges erode long-term pension investments and those who think paying a bit more for ‘better’ investment funds will pay off in the long term.

What is obvious is that clarity around charges is a major issue. I doubt many of us in contract-based pension schemes know exactly how much of our annual contributions go in fees to our adviser, provider and investment fund. I would certainly like to see a full breakdown in pounds and pence written in an understandable way. Step two would be to see the charges ranked against the investment returns achieved. That would help to show if upper-quartile charges really do produce upper-quartile returns. This would be a blunt instrument, but is still better than the current ‘if you pay more, it must be better’ state of affairs.

Realistically, few staff will bother to look at the detail of their pension costs, but those that do could be in for a shock. They will blame their benefits managers if proper due diligence was not done on charges if their retirement pots are eroded and investment performance is no better.

If every employer offering a workplace pension were to press their advisers, providers and investment houses for better disclosure on charges, changes would happen. It would be better to do this through corporate consumer pressure than wait for yet more (costly) pension regulations.

Join the debate on pension charges on our LinkedIn group: EmployeeBenefits.

Debi O’Donovan, Editor
Follow on Twitter @DebiODonovan

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