Simplicity and low charges are crucial if plans for a new pension scheme are to succeed, MPs warned today.
The Work and Pensions Select Committee said the proposed system of Personal Accounts had the potential to give millions of people access to a retirement saving vehicle.
But it added that keeping the cost to consumers as low as possible was key to the scheme meeting its objectives.
Personal Accounts will see employees auto-enrolled into a savings vehicle in which they put in 4 per cent of earnings.
This will be matched by a 3 per cent contribution from employers and 1 per cent in tax relief.
The scheme – due to come into force in 2012 – is aimed at getting up to 10 million workers saving towards their retirement and is one of the main planks of the government’s policy to tackle the pensions issue.
Ministers want to get the cost of the scheme down to 0.3 per cent every year – despite industry concerns that this figure is unrealistic.
The Work and Pensions Committee reported that getting the costs down to around that mark is crucial for the survival of Personal Accounts.
It noted that although having an annual management charge of 1.5 per cent rather than 0.5 per cent may not sound like much of a difference, over the 40 years someone will save for a pension it means 20 per cent less at the end of the day.
The report also concluded that simplicity was needed, particularly for employers who will have to both contribute to the scheme and collect employee contributions.
MPs supported the idea of collection being part of the PAYE process.
They also called for high quality generic advice to be part of the system while urging ministers to keep Personal Accounts simple and clear for consumers.
As such, the committee said it was sceptical about proposals to include some branded funds.
‘People making pensions choices for the first time should not be bewildered by marketing leaflets pushing them one way or another,’ the report noted.
Terry Rooney, Chairman of the Work and Pensions Select Committee, said: ‘The principles of the personal accounts system are exactly right – giving employees access to a low-cost savings scheme, where they can contribute, knowing their employer and the taxman are also putting money in.
‘What we need now from the government is serious engagement to make the system workable for employers and employees, and for it to set out its proposals on the provision of advice as soon as possible.’
Dominic Lindley, Principal policy adviser at Which? welcomed the report’s conclusions. He said: ‘All decisions made regarding the structure of the Personal Accounts scheme must be made in the best interests of consumers. Our research shows that consumers want a simple, low cost scheme with a manageable level of investment choice. We agree with the committee about the importance of increasing access to generic advice in advance of 2012. This will help potential savers understand how best to make provision for their retirement.”