DWP to be congratulated for acting to protect auto-enrolment pensions
Two-pronged attack will outlaw consultancy charging and cap charges
Workers need proper safeguards for their pension savings, not another scandal
by Dr. Ros Altmann
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Steve Webb has just announced that the Government will ban consultancy charging for pension schemes as soon as possible and signals that he would like to cap charges on auto enrolment default funds. These measures will represent significant improvements for workers’ pension fund protection.
Consultancy charging was a huge scandal in the making and it is entirely right that this practice should be outlawed. Of course, it would have been far better if it had never been allowed in the first place.
Millions of workers are being automatically enrolled into pension schemes at the moment, but the Regulators were allowing their pension funds to be raided to pay fees to ‘consultants’ who advised their employers on which scheme to choose for auto enrolment. Although the workers foot the bill, they receive nothing in exchange.
Worse still, because the advice is being given to the employer and not individuals, these consultants are not even required to having the standard qualifications and are not covered by the normal regulatory protections. Workers will usually be completely unaware of what is happening and will trust their employer to choose them a good scheme. Employers do need help setting up auto-enrolment pensions, but it is just not fair to charge members for this. The charging structure must not disadvantage workers in this way.
Steve Webb is to be congratulated for acting to ban consultancy charging, which could have been another major pension scandal. For example, in a recent Which? mystery shopping exercise, various insurance companies agreed to charging each worker £400-£450 for the first year and then ongoing annual charges on further contributions each year, ranging from £5 a year to 7.5% a year for the first five years. For a low earner, these kinds of fee levels could see their pension fund reduced by nearly half yet they can do nothing to protect themselves.
Auto enrolment schemes are supposed to be ‘low cost’ and ensure workers get more income in later life.
The DWP is therefore also indicating that it wants to introduce a cap on pension charges for auto-enrolment default funds. That would help ensure workers have the best chance to save in good value, low cost pensions and are protected by Government from the most egregious practices which have too often given pensions such a bad name in the past.
The last thing we need is another major pension scandal – we have had more than enough of those already.
Dr. Ros Altmann
10 May 2013