'Millions in a pensions minefield' says new reportMcFall demands better value and increased clarity
01 August 2011
The Workplace Retirement Income Commission, led by Lord McFall, has issued a wide-ranging final report, which calls for lower scheme charges, better pension outcomes and increased transparency. The report also recommends increased pension contributions, concluding that the 8% statutory minimum envisaged under auto-enrolment from 2012 is inadequate.
Calling for urgent action to improve defined contribution pension schemes (which are becoming the norm in the private sector), Lord McFall said: 'Sadly, millions of people are being left to navigate a pensions minefield that would puzzle Einstein. We're seeing less saving and lower trust in pensions, and that's a vicious cycle that cannot continue.'
Reflecting on pension changes due to begin in 2012, McFall continued: 'Auto-enrolment will help, but it's a halfway point, not the final answer. More needs to be done. We hope this report will be a catalyst for discussion about the bigger picture. There's no point bringing people into pensions that will erode their savings through high fees.The Government should set a clear ceiling on the charges that will be allowed under auto-enrolment.
McFall also stated that annuities stand out as 'an area sorely in need of a shake-up. People are being shortchanged by the current system, and it's unfair that a miscalculation can haunt them financially for decades.'
makes 16 specific recommendations. These range from increasing the minimum contribution under auto-enrolment to capping charges at stakeholder levels for eligible schemes. They include doing more 'to ensure that shopping around really is the default' for annuity purchases and encouraging annuities to be more flexible.
The Commission is particularly concerned to improve outcomes for those with several small pension pots. Noting that they may struggle to get the best annuity rates and be penalised through higher charges as a result of active member discounts, it calls for consideration to be given to 'whether small pots should be defaulted into schemes where they can be managed efficiently, including NEST, which is currently banned from taking them.'
Welcomed by Which?
The McFall Report has been widely welcomed. Which? Chief Advocate, Doug Taylor said: 'Which? shares many of the concerns in this report, and the policy solutions suggested. The central consideration is what works for the consumer. We know that we will all have to take more responsibility for our retirement and that means building up a pension pot.
'The 2012 reforms are a good starting point but during the current parliamentary debate on auto-enrolment the Government should accept our proposals to ensure that all schemes which consumers could join are of high quality with control on charging levels both when someone is at work and after they leave the company.'
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