Why employers are culpable for pension investment offerings.
The PPI misselling headlines that hit the headlines again this week has got me thinking about workplace pensions.
Let’s rewind back to the days when we were being pushed to buy payment protection insurance (PPI) at every turn. Because I had read how bad a product it was, I can remember telling telesales people that it was a rip off. Savvy buyers knew it was dodgy at best.
Yet, no one, especially those selling it, stopped trying to tout it around town.
Fast forward to today and there are other even bigger mis-selling scandals brewing that will hit employees, employers and pensions suppliers. These are all pensions-related.
The appalling situation where employees in workplace pensions simply opt to roll into their employer’s pension providers’ annuity service must stop. Employer need to proactively emphasise the need to shop around and use the open market option (OMO) and to confess to all bad habits that will help buy a better annuity. If employers don’t, they are just as culpable as the provider if a poor annuity rate is purchased.
The other, perhaps even more damaging, misselling activity is when staff fall into a default pension investment fund (compulsory to offer one under auto-enrolment) that is not fit for that workforce. Here, many employers are even more guilty. Too many offer out-of-date, high-charging (for no good reason) schemes that will cause hugely expensive damage to employees’ future retirement pots.
The solutions sound simple: educate staff on retirement choices and get your adviser in to review your default fund.
These may cost money, but only a fraction of what it will cost if nothing is done. The potential ligitation costs could be enormous, making today’s banks’ PPI costs look tame.
And to the good employers out there – shout about what you are doing. The more we show good practice, the more it will spread.