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| Auto-enrolment open to mis-selling, pension experts warn | Auto-enrolment open to mis-selling, pension experts warn |
| (35 minutes later) | |
| The recently launched landmark policy of pension auto-enrolment may be a bad idea for some workers, pensions experts have warned. | The recently launched landmark policy of pension auto-enrolment may be a bad idea for some workers, pensions experts have warned. |
| Up to nine million people will be automatically recruited into company-backed pension schemes by 2018. | Up to nine million people will be automatically recruited into company-backed pension schemes by 2018. |
| But the Pensions Institute says if they join an existing defined-contribution scheme, they could face very high charges and poor investment returns. | But the Pensions Institute says if they join an existing defined-contribution scheme, they could face very high charges and poor investment returns. |
| The report says high charges on "legacy" schemes must be abolished. | The report says high charges on "legacy" schemes must be abolished. |
| "Charges for default funds in large new auto-enrolment schemes generally represent good value, but tens of thousands of employees currently are trapped in the funds of older schemes with high and disguised charges," the report's authors say. | "Charges for default funds in large new auto-enrolment schemes generally represent good value, but tens of thousands of employees currently are trapped in the funds of older schemes with high and disguised charges," the report's authors say. |
| "There is a very real danger that smaller employers will use these older schemes for auto-enrolment, potentially bringing millions of new pension investors into poor value default funds. | "There is a very real danger that smaller employers will use these older schemes for auto-enrolment, potentially bringing millions of new pension investors into poor value default funds. |
| "Our findings from the quantitative analysis show that the retirement incomes of these in the high-charging schemes will be worth only about an average of 50% of the income achieved by members in low-charging schemes after 40 years of membership," it adds. | "Our findings from the quantitative analysis show that the retirement incomes of these in the high-charging schemes will be worth only about an average of 50% of the income achieved by members in low-charging schemes after 40 years of membership," it adds. |
| 'Members will suffer detriment' | 'Members will suffer detriment' |
| The report, href="http://www.pensions-institute.org/reports/CaveatVenditor.pdf" >Caveat Venditor, is published by the Pensions Institute at the Cass Business School, which is part of City University in London. | |
| The Pensions Institute argues that if newly enrolled workers join a scheme run by itself, Nest or B&CE, or a newly established company scheme run by an insurance form, then they will probably pay low total charges, amounting to about 0.5% of the funds under management each year. | The Pensions Institute argues that if newly enrolled workers join a scheme run by itself, Nest or B&CE, or a newly established company scheme run by an insurance form, then they will probably pay low total charges, amounting to about 0.5% of the funds under management each year. |
| But if they join an older established company defined-contribution scheme of their employer's, the charges are likely to be much higher. | But if they join an older established company defined-contribution scheme of their employer's, the charges are likely to be much higher. |
| "A 'brownfield' employer... is likely to have been sold a contract based scheme in the 1990s or early 2000s, with a total member charge [known as a total expense ratio] of 2-3% of assets under management," the report says. | "A 'brownfield' employer... is likely to have been sold a contract based scheme in the 1990s or early 2000s, with a total member charge [known as a total expense ratio] of 2-3% of assets under management," the report says. |
| "Unless these employers are told otherwise, they will use their existing schemes for auto-enrolment. If this happens, millions of members will suffer detriment." | "Unless these employers are told otherwise, they will use their existing schemes for auto-enrolment. If this happens, millions of members will suffer detriment." |
| The research was sponsored by NOW:Pensions, a UK offshoot of the Danish ATP pension fund which in Denmark covers 160,000 employers and 4.7m workers. | The research was sponsored by NOW:Pensions, a UK offshoot of the Danish ATP pension fund which in Denmark covers 160,000 employers and 4.7m workers. |
| It has been trying to establish itself in the UK by offering its services to employers who, under auto-enrolment, will be forced for the first time to offer their staff a pension scheme, to which the employers as well as the employees must contribute. | It has been trying to establish itself in the UK by offering its services to employers who, under auto-enrolment, will be forced for the first time to offer their staff a pension scheme, to which the employers as well as the employees must contribute. |
| NOW:Pensions is in competition with other group pension providers, such as the recently established Nest and the long established B&CE multi-employer pension scheme for the construction industry. | NOW:Pensions is in competition with other group pension providers, such as the recently established Nest and the long established B&CE multi-employer pension scheme for the construction industry. |
| Kite mark needed | Kite mark needed |
| The Pensions Institute argues that high charges are opaque, even to the employers themselves. | The Pensions Institute argues that high charges are opaque, even to the employers themselves. |
| If nothing is done about the problem of excessive costs, then the whole auto-enrolment project will eventually lay itself open to accusations of pension mis-selling on a huge scale, the authors say. | If nothing is done about the problem of excessive costs, then the whole auto-enrolment project will eventually lay itself open to accusations of pension mis-selling on a huge scale, the authors say. |
| The solution, the report argues, is to abolish high charges on "legacy" DC schemes, either by voluntary agreement, or by regulation, to bring them down to no more than 0.5%. | The solution, the report argues, is to abolish high charges on "legacy" DC schemes, either by voluntary agreement, or by regulation, to bring them down to no more than 0.5%. |
| Also, a new kitemark system should be devised which would identify well-run, low-charge, schemes for the benefit of both employers and their staff. | Also, a new kitemark system should be devised which would identify well-run, low-charge, schemes for the benefit of both employers and their staff. |
| Professor David Blake, director of the Pensions Institute, said there was still time to act, which would be of particular benefit to the many small employers. | Professor David Blake, director of the Pensions Institute, said there was still time to act, which would be of particular benefit to the many small employers. |
| "These employers are not required to introduce auto-enrolment immediately but many companies will need to be prepared by mid- to late-2013," he pointed out. | "These employers are not required to introduce auto-enrolment immediately but many companies will need to be prepared by mid- to late-2013," he pointed out. |
| "A clearly signposted kitemark website for good quality value-for-money schemes - available to all employers, irrespective of their size and employee profile - would facilitate fair and equal treatment for all private sector employees, irrespective of how much they earn and the company for which they work," he added. | "A clearly signposted kitemark website for good quality value-for-money schemes - available to all employers, irrespective of their size and employee profile - would facilitate fair and equal treatment for all private sector employees, irrespective of how much they earn and the company for which they work," he added. |