Consumer watchdogs are urging the government to take action against insurance firms and advisers who sign up retirement savers to expensive pension plans with unfair terms.
Consumer Focus claims three pension industry sales strategies are to the detriment of savers and wants easier to understand agreements and a ban on some pension transfers.
The group highlights three personal pensions features for investigation:
• Pension ‘churning’ – the transfer of funds between different pension schemes – which can result in higher charges and more investment risk that can leave retirement savers worse off
• A ban on ‘trail commission’ – ongoing fees paid to advisers or the pension provider – which Consumer Focus claims gives no benefit to consumers but cuts the size of their retirement fund
• Clearer disclosure of fees and charges so savers can compare pension products and how costs affect their investment over several years
Consumer Focus wants the government to force pension firms to open their books and reveal the true nature of their charges to retirement savers.
Christine Farnish, who chairs Consumer Focus, said: “The complexity of costs and charges, despite years of work by regulators on disclosure, make it all too easy for savings that should be going into a pension pot to be siphoned off in costs and charges. This complexity makes it impossible for consumers to judge price, and shop around for a good deal as they would in other markets.
“Too many consumers are being persuaded to switch their pension into different pension products which may well leave them worse off. Others are signing up to paying trail commission to their advisor for the life of the product – which may be decades – without receiving any tangible benefit.”
Consumer Focus also wants an inquiry with a view to letting employees with private pensions transfer their funds in to the new NEST pension scheme that starts next year. The aim is to let savers with modest pension funds make more of their investments.
“The FSA needs to get a grip on this market and tackle consumer detriment as soon as possible. We also call on the government to review its policy on transfer of small pension pots into the new low cost NEST scheme when it launches next year,” said Farnish.
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