/ Money

Unveiling the invisible world of pensions

Do we need to know more about what our pensions are saving for and when we might need them? Our guest, the FCA’s Christopher Woolard, wants to hear your views.

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?.


I typed something here this morning and deleted it since I don’t have enough background to work on. However, years before I retired I knew exactly what I was paying in and exactly what I would get at the end. Not in terms of payout but what the calculation would be based on. There was a certainty that my input would deliver a predictable outcome. I was not charged a fee to have a pension provider who invested my money as he felt fit. Now it seems that the whole pension industry is a guessing game, relying on investments rather than payments and market forces dictating what happens at the time one retires. This is wrong. A pension should be predictable and not at the whim of an investment company. Pensions are an important saving and no one should be charged for having a pension, particularly as those charges pay for people to gamble your money and sometimes lose it. Pensions should be simple and straight forward. You pay in X and you get out Y. Any other type of saving or investment is not a pension. The problem has been that the government and employers have been doing the maths and have become aware of their pension liabilities. The result is a drop in the standard of living since more of the disposable income is required to receive the same pension at the end. It seems that with this change, pensions themselves have changed and fragmented so that choosing the correct pension or form of pension is complicated. This is not a business opportunity, it is a social service to provide those retiring with an income on which to live. Pension funds obviously seek to maximise their income, but that’s their business and it is their responsibility to pay their pensioners regardless of what they do with the money invested with them.

I’ve no doubt there are other factors that muddy the waters, and those with a better understanding can develop these if they wish.

I agree with Vynor that pensions should be simple and straightforward. When coming up to retirement, the last thing that anyone needs is uncertainty about what they will receive and having to keep an eye on multiple pension pots. With a substantial proportion of the population seemingly unable to avoid paying interest on overdrafts/loans/cards I am not convinced that everyone understands investments and associated charges well enough to avoid being exploited or to understand the risks.

When considering retirement I used my pension provider’s website to get an estimate of my pension and followed this up by requesting a formal forecast. It was much easier than I had expected.

That’s precisely it! Pensions should be risk free. You are saving for old age and want to save predictably. No charges, no volatile stock markets and no worry about savings going down or up through no fault – or control – of your own.

I don’t know of any way you can have a risk-free totally predictable return on your savings. For your savings to grow they have to be used in an income generating way, such as stocks and shares and other real productive ways; these are unpredictable. However, operating charges should be predictable.

One way to provide a predictable return would be to have the quoted return underwritten by the taxpayer if it should fall short. Not fair, I’d suggest, as those saving the most would get the biggest subsidy. No fairer than the taxpayer funding generous and fixed-return public service pensions, something most cannot hope to get.

However, it would be interesting to see what realistic savings schemes people propose that do not depend upon taxpayer support.

I do not see how you can predict a pension that will be paid 40 years from now, as a new saver. Unless you have a state pension that pays in the same way as a civil service pension – essentially out of taxation – most pensions will rely on investments, even savings interest rates will depend upon investments. Unpredictable returns over such a long period, but the history is they do make a reasonable return.

Perhaps what is needed is a national saving type pension (in addition to the existing state pension) operated by the state where the contributions buy a standard pot of shares, bonds and suchlike and where the costs a fixed. If someone wants to be more adventurous then they can also take their chances with any extra payments they want to make by joining a “commercial” pension scheme. Alternatively, if they forgo the tax incentives, they can invest in their own chosen field, such as property.

I would, incidentally, limit pension contribution tax relief to the basic rate of tax.

I have used an IFA to handle my SIPP and I know exactly how they are going to charge in annual fee, management charge, and trades, just as I do on my ISA. I see no reason why pension providers cannot be as transparent.

A new Which? press release:

Which? responds to FCA findings on pension scams that reveal five million savers could be at risk
7 August 2019
Jenny Ross, Which? Money Editor, said:
“Pension scams are becoming increasingly sophisticated and have devastating consequences, leaving savers at risk of seeing their entire retirement income disappearing in an instant. It’s vital that more is done to raise awareness of these scams, and that robust measures are put in place to protect people.

“Savers should always be wary of unsolicited calls, online offers and adverts claiming to offer investment opportunities, free pension reviews, or access to your funds before you turn 55. Before even thinking about engaging, check if the company is on the FCA’s register, as unfortunately fraudsters and bogus companies are on the rise.”

Maybe we should be moving towards rather than away from final salary and career average schemes, since individuals are not required to manage their pensions and expose themselves to risk of scams. Of course these schemes need to be managed properly to cope with the fact members are living longer than in the past.

Can you suggest how these schemes can be funded, without involving taxpayer support when they have to pay out?

You manage the schemes properly, increasing payments in a timely fashion to meet future requirements. Individuals are encouraged to plan for the future, and so should pension providers.

I’m no expert in financial matters but I see no way you can guarantee paying someone a predicted sum, based on their salary, for as long as they live, that is funded without the possibility of any subsidy. Growth in wealth to fund such payments is too unpredictable.

A suggestion. Pensions are essentially savings, contributed by employer and employee, invested in various securities. Do we need a complicated pensions industry to do that? ISAs based on investments offer tax free growth – on capital and dividends. The investments, of limited risk, should yield a couple of percent income above inflation, to be reinvested. The securities over the long term should grow in value, on average. So we each take out a “Pension ISA” into which we contribute up to a limit each year out of taxed income, with a statutory contribution from the employer. The same rules whether you are in public or private employment. Only draw a pension, tax free, from say age 55, and set an annual limit on the withdrawal so you don’t run out money too soon. If you want to save more, then there are other ways to do so.

From the employee’s point of view the final salary or career average schemes offer clarity and simplicity, and it would seem less opportunity to be affected by scams. Contributions by the employee and employer might have to change to ensure that the fund can deliver at retirement. We already have provisions to add to pensions via AVCs.

Failure to plan financially for retirement has long been a problem. If you pay into a defined benefit scheme and leave the money there, you might not run out of money in retirement.

We’d all like clarity and simplicity in our financial affairs – from our house price, real value of savings, return on investments and their price stability or growth, let alone the most important stability perhaps in our job and salary. Sadly, not the way things work in my experience.
The difference between us seems to be the ability to guarantee a self-funded scheme can provide a defined income (unknown for most of the term as the final salary will be unknown) from regular payments starting 40 years before it is to be paid, when working for a number of employers.

Perhaps someone expert in pensions can assist.

Maybe Christopher, the author of this Convo, will drop in.