We’ve got something to celebrate, as pensions minister Steve Webb has announced a ban on consultancy charges for auto-enrolment pension schemes. But our work doesn’t end here…
The government’s automatic enrolment initiative to help people save for retirement kicked off in October last year. Some of you may have been enrolled into your workplace pension already.
At Which?, we think it’s important people save for their retirement. But we want to ensure that all employees get the best deal with their pension savings through auto-enrolment. One element of auto-enrolment that particularly concerned us was consultancy charges.
Our undercover pension investigation
If an employer decided to get advice on setting up their workplace pension scheme, they could choose to pay the fees out of their employees’ pension pots via consultancy charging. We felt this left employees powerless, paying for advice they didn’t receive directly. So earlier this year, we put the pension providers to the test.
We posed as a pensions consultant, approaching five different pension providers to set up auto-enrolment pensions for fake companies. We asked the pension providers to deduct our consultancy charges from these pension pots, which we knew would rip off any employees unfortunate enough to be enrolled in them.
The highest charge we submitted would’ve had employees paying £450 from their pension pot in their first year, and 7.5% of all contributions into their pension pot for five years.
We found that none of the pension providers objected to deducting these consultancy charges, even though they would’ve had a severe detrimental financial effect on those enrolled in the pension.
Pension consultancy charges banned
Shocked by our findings, we lobbied the government for a ban on these consultancy charges. And on Friday, pensions minister Steve Webb announced a ban, recognising the real risk they pose of eating away at people’s hard earned money.
Although the ban is a great step, we won’t stop here. Which? is also calling for a cap on other charges in pensions used for auto-enrolment, such as management fees from the pensions company. We want to make sure that everyone who’s automatically enrolled into a pension is getting a good deal from their savings.
If you knew the charges for your workplace pension were reasonable, would this make you less likely to opt-out?