Richard Lloyd, Which? executive director, explains why young people should support the campaign being led by Which? to have a cap imposed on the fees and charges levied by pension funds
Last week the Government announced plans to reform the pensions market, proposing a cap on administration fees for auto-enrolment schemes.
But 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.
Pension fund managers apply fees and charges to manage your pension pot, but the rates vary and some schemes are charging well over the odds.
Millions of people are currently paying in to these rip-off pensions, but many might not realise so much of their money is being taken in fees until it’s too late.
We are calling on the Pensions Minister, Steve Webb MP, to do more to protect people’s retirement funds.
We want the Government to lower the level of the proposed new cap, extend the proposals to more schemes and ban other unfair charges.
We have calculated that if the new cap is set at 0.5%, as opposed to the proposed 0.75%, and extended to cover all new and existing workplace schemes, consumers could save around £4.8 billion just over the next 10 years.
This seemingly small percentage change means that an individual pension fund could be £40,500 better off. Younger workers have the most to gain from a cap on fees and charges, as they will be saved a huge amount of money over the course of their working lives.
We also know that annual management charges can more than double when people move jobs, unfairly eroding the value of their pension pots, and this needs to stop.
With consumers being squeezed by the rising cost of living, there is no room for rip-off pension schemes in the workplace.
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 – the main reason (49%) for not saving being that they can’t afford it.
Only a quarter (26%) of people are confident they will have enough money to live on in retirement.
To protect people’s retirement funds, we’ve launched 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.
Anyone paying into a workplace pension scheme should feel confident that their money is being well looked after, not lining the pockets of a fund manager.
But in a previous investigation we found this is not the case.
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.
If you want to say ”Hands off my pension” too, then pledge your support here.