Rising pressure for proper pension reform – Money Mail joins calls for fairer pensions
22 January 2014
- Pressure for pension reform really building up
- A great chance for consumers to get better value pensions
- Policymakers and the pensions industry need to wake up to the problems and act now
Today, the Daily Mail’s Money Mail has begun a campaign for better and fairer pensions. The pressure on the pensions industry is building up as another national newspaper launches a manifesto for change that would ensure far better value for customers. http://www.thisismoney.co.uk/money/pensions/article-2543615/5-radical-steps-stop-great-pensions-rip-off.html?ICO=most_read_module
How long can the industry hold out against so much negative publicity, highlighting the poor practices in pensions and the damage done to people’s later life incomes by the current system. As Money Mail’s editor rightly puts it we ’must not leave the frail and the unaware to be preyed on by unscrupulous firms which routinely offer the worst deal’ and we need to ‘ensure that people…aren’t handcuffed by daft rules and antiquated regulation’.
Change is required both from the regulatory system and the industry itself. As auto-enrolment sucks millions more people into pensions for the first time, it is ever more important to ensure that they are treated fairly and have the best possible chance to achieve good retirement income outcomes.
Charges on people’s pension savings are now much fairer than they used to be – with a possible cap on costs being considered and consulted on. The Government-backed national pension scheme NEST, however, still charges a hefty 1.8% of each contribution and, despite having a low ongoing annual charge, this two-tier structure needs to be reformed to offer a simple, flat-rate charge that everyone can understand and that can then be compared easily across the market. Further controls on charges are likely to be introduced, to ensure workers in smaller firms do not find they face much higher pension costs but that alone is not enough.
Regulatory controls and improved practices in the annuity market are vital. The Money Mail campaign demands standardisation of information and an end to rip-off annuities, with simpler, more flexible rules that allow people to take money out of their pension fund without having to buy bad value products or be tied up in red tape restrictions.
Annuities are still being sold to unsuspecting customers who do not realise the poor value they are receiving. There are no controls on the charges, nor the value for money, that the annuity market must offer. As James Coney, Money Mail editor rightly points out, when selling any other insurance product, customers must give the insurer all their personal details and declare all their relevant circumstances and will then receive an individual quote. With annuities, the insurer does not have to take into account whether the person is married, what their health status is, what kind of pension plan they have or any other information that would be relevant to provide the most appropriate quote. Nobody is checking whether the value offered is fair. And yet annuities are not like any other insurance product, because once they have bought their annuity, customers are almost always locked in for life.
So come on everyone, let’s wake up and smell the coffee. We need to make pensions work well for people, not just for the pension providers. Annuities are too inflexible and offer poor value in too many cases, we need tougher regulation and proper customer care, with standard forms written in plain English, rather than umpteen pages full of jargon which confuse customers, even when supposedly designed to help them.
And it is not just the newspapers that are calling for change. Independent researchers are constantly highlighting the failings of the UK pension system. The latest is the interesting report out today from Policy Exchange ( http://www.policyexchange.org.uk/publications/category/item/help-to-save-defusing-the-pensions-time-bomb ) which calls for compulsory pension saving, higher contributions and a reform of annuities, among other measures. Of course higher contributions are required, but unless the pension system is reformed to offer better value, the extra savings will not deliver sufficient extra income.
I hope that the Government and the pensions industry will listen carefully to consumer and media concerns, and put an end to the poor practices that give pensions such bad press. The time for proper reform has arrived.