Listening to many financial advisers, you would think the introduction of the Retail Distribution Review in 2013 will adversely affect employee savings as they lose access to ‘free’ advice.
I heartily disagree. It will bring transparency to the charging structure of financial products and dispel the myth that the advice is free. Paying a fee, although seemingly high at the time, is frequently lower than the overall commission paid to an adviser or provider over the course of an investment. Under the new regime, without commission being taken out, more money will go into pension fund investments, leading to a bigger final pension for workers.
I would also argue that most numerically-literate, average-earning employees can manage to make sensible decisions about a simple pension and a few other savings vehicles as long as they have access to workplace financial education (offered free by the Consumer Financial Education Body) and the personal finance press. Higher-rate taxpayers and those with more complex benefits, such as share schemes, will need more help, but these are a minority and the financial services industry is only too willing to offer them services (for a fee).
On the topic of fees and staff getting a fair deal, the charges on investment funds are concerning. Few people understand this area, which raises the possibility of high charges for specialist advice, with few being the wiser as to whether this will result in better returns.
I assume most benefits and HR people do not consider themselves experts in investment funds. But with the rise of contract-based defined contribution pensions, such as group personal pensions, it is benefits and HR managers who sign up for particular pension fund choices and default funds. Their choice will have a major effect on a workforce’s final pension pots. It is time for employers to step up and flex their consumer muscles on pension investment choices and the fees that employees pay.
If this doesn’t convince you, then it is sobering to note that asset managers’ salaries are once again on the up in order to compete with rapid wage inflation in the investment banking sector, according to a survey by PricewaterhouseCoopers last month. Are you really happy that your employees might be paying for this through their pension fund investments when you can’t be sure they are getting value for money?
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