Unveiling the invisible world of pensions

This is a guest post by Christopher Woolard. All views expressed are Christopher’s own and not necessarily shared by Which?.

“The pensions world is not interesting because it is invisible; you can’t see what you are saving for and you don’t know when you are going to need it. It also feels a bit dark because it might need to be used in my old age which I don’t want to think about. I put money in a pot and don’t think about it too much”

That was the view of pensions expressed by a member of the public taking part in our research into the non-workplace pensions market, published yesterday.

It may well strike a chord with many of you. But things which you don’t think about much can make a real difference to your retirement.

The value of your pension will depend on how much you put in, how your investment grows – and how much you’re paying in charges. Those paying the highest pension charges could be losing tens of thousands of pounds over a lifetime.

There are a range of non-workplace pensions available – you may have an individual personal pension (IPP), a stakeholder personal pension (SHP), or a self-invested personal pension (SIPP), among others.

Our work takes a detailed look at how people engage with these products and whether firms are competing on charges, across a sector which looks after £470bn of savings.

Active pension decisions

Many of the problems we found won’t be surprising. Former Pensions Minister Angela Eagle raised many of the similar concerns about the pensions sector as a whole in May.

But the research and data we’ve gathered has provided further insight into what is causing problems in the market – and how we can tackle this.

We found that large numbers of people don’t make active decisions about their pensions – or know how much they’re being charged. But we also found that many of the charges are so complex that comparing products simply isn’t possible.

This reduces the incentives for firms to reduce their charges to compete with each other. So we’re looking further at how charges can be displayed in a way which is simpler and clearer, to help you compare products and charges.

But more than this, half of the people in our research weren’t even aware they’re paying charges on their pension savings.

To begin to address this, we could require charges to be displayed in pounds and pence. And we could complement this with information on how these charges actually impact on your pension – that is, how much money you’ll have built up when you retire.

Most people we spoke to also didn’t pay close attention to where their money is invested over the long-term. That’s not necessarily surprising – complex products deter people from doing this, and we want to change that.

We also want to help those who may not be able to make these decisions achieve value for money.

Ready-made solutions

So we’re exploring whether firms should have to provide ready-made investment solutions which link to people’s broad objectives.

We want to encourage people to make active decisions if they can, but we want appropriate options to be available whatever your level of interest. We know that there will be calls for us to cap charges.

At this point we can’t say this is the right thing to do. The data we looked at as part of this work didn’t tell us whether charges are too high compared to the benefits they provide. But we will be looking at
this further.

We’re also doing wider work which will look at how value for money in relation to pensions should be evaluated, measured and reported. This work will help inform our views on whether a charge cap is appropriate.

We’ve got more work to do here – we’ll publish a consultation next year which will set out our next steps. We’re keen to hear your views in the meantime – including in the comments below. So let us know what you think.

This was a guest post by Christopher Woolard. All views expressed were Christopher’s own and not necessarily shared by Which?.