Average earners will lose out on more than GBP 15,000 if the financial services industry is allowed to run the proposed national pensions savings scheme (NPSS), according to Which?.
In November the Pensions Commission suggested the scheme should be set up to help people on low and middle incomes save towards their retirement.
All employees without decent existing provision would be automatically enrolled and would contribute five per cent of their earnings, with their company paying three per cent. Employees would also have the right to opt-out.
Contributions would be collected through the national insurance system and paid into a personal retirement account, with charges of 0.3 per cent.
The Association of British Insurers (ABI) is about to put forward its own version of the scheme, with charges of 0.7 per cent. This would leave average earners GBP 15,500 worse off over their lifetime compared to the NPSS model.
But Which? Principal Policy Adviser, Mick McAteer believes workers could actually lose out on far more.
‘Industry claims to be able to run a scheme with a charge of 0.7 per cent, but there’s no way they can deliver at this level when experience of stakeholder pensions shows us that they couldn’t even deliver at 1.5 per cent.
‘They have gone in with a low bid and all consumers can do is watch the charges creep up and up. From previous experience, I wouldn’t be surprised if we would soon see the charge standing at 1 per cent. If this did happen, then consumers would lose out to the tune of GBP 26,000 compared to the NPSS model.
‘We have a unique opportunity to create a consumer-focused pensions system with NPSS and it mustn’t be allowed to become the biggest gravy train in recent history for the insurance industry.
‘Over and above the financial benefits of NPSS, there are other reasons why we should be wary of the ABI model. Can we really put the financial well-being of future generations in the hands of the people who ran contracting out, with millions of people likely to get less than they would have done had they stayed in their state scheme?
‘This can’t be allowed to happen again. NPSS could be what persuades people to save for their retirement and prevent future generations living in poverty.’