As the government unveils its proposed changes to the pensions market – which includes a cap on fees – we take a look to see what more can be done to help savers get the most from their pension pots.
The number of people saving into a pension in the UK is pitifully low – according to the Office for National Statistics, just 46% of British workers are saving into their company pension. That’s the lowest since records began in 1997.
The government’s solution to tackle this problem, getting companies to automatically enrol their staff into these schemes, is about to kick off in earnest. So far, 1.6 million people working for large companies have been automatically enrolled into a workplace pension. And less than one in 10 have decided to opt out. This is far better than expected, but the real test will come when millions more workers at 29,000 medium and small firms join a pension scheme – many for the first time in their careers.
Taking a pay cut to save for a pension
Today the government announced its plans to consult on a cap to charges on workplace pensions. We welcome this but the government must take the opportunity to scrutinise the market to see if the proposed cap could be set any lower. Even a fraction of a per cent can have a significant impact on pension funds. And at a time when we’re all feeling the squeeze, we need to feel confident that our pension schemes are giving us the best value for money.
Now, on the whole, people saving in modern pension schemes do get a better deal. But Office of Fair Trading (OFT) studies have revealed a myriad of problems – the most shocking revelation was that £40bn worth of retirement savings were languishing in poor-value legacy workplace pensions.
Hiking charges for leaving a pension scheme
The OFT also identified seven providers that hike up charges when you leave a pension scheme. You’re effectively punished for leaving your job – with 60% of people stopping contributions to a pension within four years, the majority will be hit by these penalty fees.
The pensions industry is now entering a crucial period – millions of us are relying on it to save for a comfortable retirement. The government must seize this opportunity to help us save for our futures by ensuring stronger regulation so these charges can’t simply be hidden elsewhere.