Prospective employees are not getting enough support with choosing an annuity, according to the National Association of Pension Funds (NAPF).
The Supporting savers at retirment report, which looked into employer advice and the brokerage market used by employers in the private sector with staff in defined contribution (DC)pension schemes, highlighted a string of barriers preventing employers from appointing helpful services.
These include:
- Employers offering DC pensions to their employees are often too scared to go beyond the legal minimum in helping them at retirement because they fear legal comeback.
- Employees working for smaller employers or with smaller pension pots are most at risk because of the costs to their employers of setting up guidance and advice services, and because smaller pension pots are less profitable for advisers and brokers.
- The advice and brokerage market can be complex for employers to understand, with a range of different charging and service propositions available. Employers may need help understanding what arrangement works best for their staff.
- Fee and commission-based charging models can both help deliver a better deal for savers, but employers need to be alive to the pros and cons of each, and the impact of different groups of staff.
Mel Duffield, head of research and strategic policy at NAPF, said: “People should automatically shop around for the best annuity when they retire, and employers and pension trustees can do more to make this happen.
“Whilst insurers are getting better at communicating with savers, it is still the case that hundreds of thousands are failing to obtain quotes and compare prices in the market.”
Morten Nilsson (pictured), chief executive officer of NOW:Pensions, added: “It’s a sad fact that after years of saving, pensioners often end up with a poor value annuity that doesn’t reflect their individual circumstances or needs.
“Auto-enrolment means that in the future, millions more people will need to make annuity decisions and once these decisions are made, they are irrevocable.”