Consumer Focus swoops in on pension churning
by Gill Montia
Story link: Consumer Focus swoops in on pension churning
Consumer Focus has highlighted “serious problems” in the Individual Personal Pensions (IPP) market and written to the Financial Services Authority (FSA) asking that further action be taken to tackle consumer detriment in the market.
In a recent study the watchdog identified three major issues as follows:
Some consumers are being advised to switch to different pension products, often with higher charges or higher risk; the case studies in the report suggest that much of this “churn” is not appropriate and could leave consumers worse off in retirement.
The trend for products to charge on-going fees, known as “trail commission”, is increasing in advance of the expected ban arising from the FSA’s Retail Distribution Review; most consumers get little or no benefit from trail commission yet the ongoing charges reduce the size of their pension pot.
Disclosure of costs and charges remains complex and opaque, making it virtually impossible for consumers to shop around or know what represents good value for money; the compound effect of costs and charges over time is probably the most important factor determining the size of a consumer’s pension pot on retirement.
Consumer Focus chair, Christine Farnish, comments: “Our investigation shows that practice in the Individual Personal Pensions market still leaves much to be desired.”
She adds: “The complexity of costs and charges, despite years of work by regulators on disclosure, make it all too easy for savings that should be going into a pension pot to be siphoned off in costs and charges.”