FCA to force pension providers to unveil hidden ongoing charges under new proposals

Companies offering popular pensions products will be forced to be transparent about ongoing charges, in a fresh batch of measures bidding to help increase savers’ pension pots by £25m a year.

The Financial Conduct Authority (FCA) announced today it would force providers of so-called drawdown products – where retirees leave their pension funds invested rather than withdrawing them – to show consumers exactly what charges they have paid for the product.

The measure will mark a break from current laws, where providers have no obligation to detail each individual ongoing charge.

The FCA added if it found issues with the way providers were charging their customers it would consider imposing a cap.

“The FCA expects firms to challenge themselves on the level of charges they impose on investment pathways. If the FCA subsequently identifies issues with charges, it may move towards imposing a cap.

The announcement comes as part of a wider range of measures proposed by the watchdog, aimed at helping guide savers through complicated choices about their pension plans. The FCA will undertake a consultation on the measures.

Major changes to pension laws in 2015 allowed savers to take more control over how they invest and access retirement savings.

Firms will offer so-called investment pathways, ready made investment plans for those going into drawdown without professional advice.

The watchdog will make firms warn their customers about the downsides of holding investments in cash, as well as the transparency on charges.

Tom Selby, analyst at AJ Bell, said: “Investment pathways are a major intervention by the regulator so this is going to be an important consultation process. The key will be on ensuring the investment pathways are capable of matching the needs of consumers selecting each of the four retirement scenarios.

“At the moment the proposal is for providers to have to offer just one investment pathway for each scenario. However, the retirement scenarios are very broad and it is difficult to see how one investment option is going to be able to cover the myriad of needs and risk levels of all the people selecting each scenario.”