Our guest, Angela Eagle MP, sets out how we can tackle rip-off pension fees, and asks if you’ve been affected.
This is a guest post by Angela Eagle MP. All views expressed are Angela’s own and not necessarily shared by Which?.
As a former pensions Minister, I know more than most that eyes glaze over as soon as you raise the subject so why on earth am I moving a Ten Minute Rule Bill on pensions charges in Parliament?
Because 34 million people are currently either saving into or accessing a private pension and the introduction of auto enrolment has brought millions more into workplace pension saving for the first time.
Yet it is obvious that the pensions market which is charged with investing savers’ money needs a drastic overhaul.
Complex and confusing by design
The pensions being offered are complex and confusing by design. Providers conceal many hidden charges eating away at individual pension saving pots under the nose of their clients.
The Financial Conduct Authority discovered that some products have up to 44 different charges levied on unwitting customers. The market is lacking transparency.
Price often bears little relation to outcome and the price structure is so complex that it sends no meaningful signals to buyers. The Financial Services Consumer Panel pronounced that the pensions market was “not one where competition works in consumers best interests.”
The Office of Fair Trading pronounced the market for buyers as “one of the weakest it had analysed in recent years.” The Financial Conduct Authority noted that, despite a large number of operating firms, there were sustained high profits, which is a sign of weak competition.
In short this is a market that works for the suppliers not the buyers.
How can this be changed?
There needs to be much more transparency. It should be a mandatory requirement for all auto enrolment pensions to publish a summary of all charges in a standardised form, like it is Holland. This would allow a proper comparison of value for money across products.
There should be caps on charges to ensure that large percentages of sometimes modest pension pots are not eaten up by providers’ charges. After all, an increase in only 0.5% of an admin charge will be compounded over time, so that it costs a much higher proportion of the money saved.
I support Which?’s call for cost caps to apply to drawdown products during the decumulation phase as well as saving into funds during the accumulation phase. Astonishingly there is currently no regulation or cap on charges for drawdown products despite the so called ‘pension freedom’ reforms which allowed savers early access to their pension savings.
This lack of transparency and regulation in the industry is why when I was Pensions Minister in the last Labour Government we introduced the National Employment Savings Trust or NEST as part of the 2008 Pensions Act.
Nest’s low charging structure was designed to be an industry leader and act as a benchmark across the pensions industry to drive down cost. This has begun to work but now is the time to force further change or we could be letting down millions of pension savers.
I’d be interested to hear how you’ve been affected by pensions charges. Let me know in the comments below.
This was a guest post by Angela Eagle MP. All views expressed were Angela’s own and not necessarily shared by Which?.