Which? launches a new campaign calling on Pensions Minister Steve Webb MP to do more to protect people’s retirement funds.
Last week the Government announced plans to reform the pensions market, proposing a cap on administration fees for auto-enrolment schemes. We are calling on the Government to lower the level of the proposed new cap, extend the proposals to more schemes and ban other unfair charges.
We believe the new cap on auto-enrolment pensions should be lowered from the proposed 0.75%, to 0.5% and be extended to cover all new and existing workplace schemes. This seemingly small reduction could mean a difference of £40,500 in your pension fund at retirement and save consumers around £4.8 billion just over the next 10 years.
To protect people’s retirement funds, Which? is launching the Hands Off My Pension campaign calling for the Government to:
– Set the proposed charge cap at 0.5%.
– Roll out the cap to cover all new and existing workplace pensions.
– Ban hikes on annual management charges when switching job.
Which? is asking consumers to pledge their support for the Hands Off My Pension campaign.
Which? executive director, Richard Lloyd, said:
“Millions of people are currently paying in to rip off pensions, but many might not realise so much of their money is being taken in fees until it’s too late.
“While we strongly support the direction of the Government’s plans there is an urgent need for better minimum standards for all workplace pensions so people can be confident that they are being enrolled into high quality, good value schemes.
“With consumers being squeezed by the rising cost of living, there is no room for rip-off pension schemes in the workplace.”
In a separate Which? investigation we found a third (35%) of people who have opted out of auto-enrolment, or say they will opt out, do so because they do not trust the pension industry to look after their money, and one in five (22%) because they are concerned about the quality of the scheme.
The latest Which? Consumer Insight Tracker showed that just six in ten (62%) people in full time work are saving into a pension – that’s less than half (46%) of all non-retired people – and only a quarter (26%) are confident they will have enough money to live on in retirement.
Notes to editors:
1. The figure of around £4.8 billion is based on projections for both existing workplace pensions and new ones, over the next 10 years. It assumes that the cap is set at 0.5% as opposed to 0.75% and is extended to include all new and existing workplace pensions, not just auto-enrolment schemes. To estimate this, we used Office of Fair Trading data from their market study on the existing amount of money in workplace pension schemes and the distribution of charges on these, HMRC data on pension contributions and Department for Work and Pension (DWP) estimates of the additional annual contributions expected in future from the introduction of auto-enrolment – scaling the gradual increase in these numbers using data from the 2011 Pension Bill impact assessment. For future increases in contributions we assumed that 30% would be made into the NEST scheme, 20% into newly established schemes charging less than 0.5% and 50% into existing schemes or newly established schemes with similar charging levels, although it is difficult to accurately project which schemes employers will choose. Projecting forward to the end of 2023, the box below outlines the savings based on a 0.5%, a 0.75% and a 1% cap – compared to no cap at all:
|1% charge cap||£190 million|
|0.75% charge cap||£2.4 billion|
|0.5% charge cap||£7.2 billion|
For more details of the methodology, please email firstname.lastname@example.org.
2. The figure of £40,500 is based on Government calculations with contributions of £100 a month, increasing at 4% a year for 46 years. See page 12: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/254332/cm8737-pension-charges.pdf
3. Which? is asking consumers to support the Hands Off My Pension campaign and share their views via www.which.co.uk/handsoff
4. Consumer Insight Tracker: Populus, on behalf of Which?, interviewed a representative sample of 2,115 UK adults online between 25th and 27th October 2013. Data were weighted to be demographically representative of all UK adults. Populus is a member of the British Polling Council and abides by its rules.
5. Which? has previously successfully campaigned for an end to consultancy charges on auto-enrolment pension schemes. In January 2013, we wrote to the Department of Work and Pensions, the Financial Conduct Authority and the Pensions Regulator. In May this year the Government announced a ban on charges for auto-enrolment schemes.
6. In March 2013, Which? found 35% of people who have opted out of auto-enrolment, or say they will opt out, do so because they do not trust the pension industry to look after their money, and 22% because they are concerned about the quality of the scheme. [Survey of 891 UK working adults (18-65) who earn enough to be eligible for auto-enrolment].
7. Which? research in 2011 found that some companies were charging 0.5%-0.7% Annual Management Charge for active members but once the person leaves then the charges could double to 1.2%-1.5%. These fees can significantly and unfairly erode the value of people’s pension pots.