Pensions industry ‘needs kite mark’
A kite-mark system should be introduced to help employers find value-for-money pension schemes, a report has recommended.
Pensions will be a “lottery” unless the Government, regulators and the industry ensure that all workers benefit from schemes offering good value relative to contributions paid, warned the report published by the Pensions Institute at Cass Business School.
It comes days after the Government’s landmark initiative to automatically enrol up to 10 million people in workplace pensions was launched. The Government scheme, started with larger firms and businesses, will gradually be enrolled in a staging process over the next six years.
The report argued that an “advice gap” for smaller employers has been created as an unintended consequence of auto enrolment, combined with the retail distribution review which will ban adviser sales commission on new schemes sold from January 1.
The introduction of a kite-mark code could help these smaller employers seek out schemes which represent best value for money, the report said. Without such a code, there is real danger that millions of new pension investors could be brought into schemes which offer poor value in a “dysfunctional” market.
Professor David Blake, director of the Pensions Institute, said there is some time to tackle the problem as many smaller companies do not need to be prepared for auto enrolment until mid to late-2013.
“A clearly signposted kite-mark 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,” he said.
More than half a million people will be newly saving into a workplace pension by Christmas under auto enrolment, according to Government estimates. Savers will typically need to put aside just over £2 a week to get them started, according to Nest, a not-for-profit pension scheme set up under the new rules.
The report, titled Caveat Venditor, argues that auto enrolment should be governed by the principle of seller not buyer beware. As employees are passively auto enrolled into schemes, they are “buying blind”, it said.
Steve Webb, Minister for Pensions, said: “I am watching pension charges like a hawk. The creation of Nest has prompted new low-cost offers in the market, which is encouraging. But I am concerned about charges in legacy schemes and have challenged the industry to bring these into line with new business. I have the power to cap charges and will do so to protect consumers if I need to.”
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