Charges on private sector pension schemes should be capped to encourage employees to save more for their retirement, according to a report conducted by the Workplace Retirement Income Commission.
The report, Building a strong, stable and transparent pensions system, stated that private sector workers must get a better deal from their pensions. It also said that there was widespread concern about charges, risks and complexity of pensions.
The commission has urged the government to use its regulatory powers to apply stakeholder charge caps to schemes that will be eligible for auto‐enrolment. The cap should match the existing limits on stakeholder pension, 1.5% per annum for the first ten years, and 1% thereafter.
In addition, the report highlighted that, for schemes with more than 50,000 members, annual costs per head tend to be between £10 and £30 while, for schemes with fewer than 1,000 members, costs can often exceed £200 per member.
Disclosure around costs and charges remains inconsistent across schemes and providers. The commission said that all schemes should be required to disclose costs and charges in a way that is transparent for consumers and which shows the cash impact of charges on the pension pot. It also stated that the industry should develop a code of good practice on this issue, and the government should monitor this and consider taking regulatory action if standards are not improved.
Lord McFall of Alcluith, the former chair of the Treasury Select Committee who led the Workplace Retirement Income Commission, said: “Too many people are stuck in a complex, costly and inefficient system that relegates the consumer’s interest to second place. On top of that, they simply are not saving enough to secure a decent retirement.
“People need to get more bang for their buck, or they are not going to bother with a pension. Instead they will end up spending today, ignoring tomorrow, and scraping by in poverty on the state pension. We cannot stand by and let that happen. The complacency of many in the pensions industry is alarming.”
Malcolm McLean, consultant at Barnett Waddingham, said: “The case for good member communication about the workings of their scheme without the use of jargon or other unintelligible language and with upfront transparency about fees and charges can hardly be over-stated as we move increasingly forward in to a defined contribution (DC) world – the success or otherwise of auto-enrolment and the National Employment Savings Trust (Nest) may yet depend upon it.”
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