The shadow pensions minister has called the current workplace pensions market flawed.
Labour’s Gregg McClymont, MP, (pictured), writing in the political blog Left Foot Forward, said that the pensions market does not operate like a normal market where the consumer exercises choice.
He added: “It’s the employer, not the employee, that chooses the pension plan and employers are, especially in the small and medium-sized enterprises’ (SME) sector, unequipped to negotiate the complexities of pension provision for their employees.
“This asymmetry has given rise to a number of practices, which can siphon away the value of savings in contract-based schemes: high charges, high transaction costs, passive member penalties, exit fees, consultancy charges and annuity rates, which fail to match the open-market rate.”
McClymont argued that these problems should be tackled by government.
“[Government] could do so by legislating directly. It could do so more efficiently by empowering a single regulator held to account by Parliament to ensure that abusive practices are ruled out of court,” he wrote.
The shadow minister also outlined a three-pronged approach to incentivising the pensions market. He stated:
- The government should impose a legal requirement that all pension scheme providers must prioritise the interests of savers above those of shareholders. This duty should be policed by trustees who would have a duty to ensure that the pension scheme providers operate in line with a new legal requirement.
- The government should free up the National Employment Savings Trust (Nest). Nest is managed by independent trustees. It’s existence and the pro-saver approach it has adopted has forced private providers to improve their performance to a degree. However, its effect is limited because of restrictions on its activity. Those restrictions should now be lifted.
- The government should also recognise that scale is important in ensuring that pension schemes and their trustees have the ability to negotiate the best terms with financial intermediaries.