Pensions—stop the residual rip-offs and put the customer first

With the UK having the lowest state pension in the developed world, good private pensions are vital for delivering adequate retirement income. Auto-enrolment has successfully increased the number of workers paying into schemes. But increasing coverage and reducing the gender gap, which is even more unequal in pension income than in pay, should still be prime concerns. And ensuring reliable performance and reasonable costs across the board is essential.

Even for those already paying into a pension, are the government, regulators and providers looking after consumers properly? I do not believe so. Past policy changes and rules introduced more recently have increased complexity, leaving more people at risk of poor outcomes.

The needs of consumers too often play second fiddle to the interests of the industry. The government-backed Pensions Dashboard—a digital interface enabling people to see all their pension savings in one place—is way behind schedule. Firms have hidden behind complexity and failed to adopt common data standards or clean up their data errors, so the project cannot function efficiently. Such errors are rife, even in newly-established schemes, and current regulations don’t even require data in auto-enrolment schemes to be checked for accuracy. As long as contributions are made, there is no demand for evidence that the scheme is a good one or even that the amounts paid in are correct.

Many of the lowest earners are enrolled on unsuitable schemes. Those with pay below the personal tax allowance of £12,500 are frequently forced to pay too much, because their employer’s scheme administers contributions on a “net pay” rather than a “relief at source” basis. This means they don’t get the same government top-up as everyone else, even though they are in theory entitled to it. More than a million of the lowest earners (mostly women) are losing out because they are on a sub-optimum scheme. This injustice could undermine confidence. Yet providers, trustees and Independent Governance Committees (IGCs) tasked with scrutiny often seem oblivious. The Conservative manifesto promised to look into it, and now action is urgently required.

The government should also require schemes to communicate with their customers in plain English, and be transparent about all costs and charges. At the moment, members do not automatically see the pounds and pence cost of the charges deducted from their pension fund each year. Annual statements are not standardised and often impenetrable. An industry group has designed a standard, simple statement that could help people to understand their pensions, yet adoption is voluntary. Mandating common standards here and, ideally, standardising data systems would make a huge difference to consumer engagement and facilitate the rollout of the Dashboard.

More people should be required to take guidance from the PensionWise advisory service before transferring money out of their pension and, at the very least, providers should have a duty to ask questions that could identify fraudulent transfers, or those made on poor advice, before the money has gone. The days of high charges for poor service, and exploiting customers for misunderstanding their pensions, should be behind us. The government must require more of providers, trustees and IGCs. Otherwise, customers will continue to be at risk of being ripped off—and thus understandably reluctant to save.