A kite mark system should be introduced in order to help employers find value for money pension schemes and help plug the current “advice gap”, a report has recommended.
If change does not take place, millions of workers signing up to the government’s auto-enrolment scheme, which came into force for large employers on 1 October, could end up victims of a “mis-selling scandal on an unprecedented scale”, it warned.
The report published by the Pensions Institute
, which is part of the Cass Business School
, pointed out that pensions could end up becoming a “lottery” unless the government, regulators and industry took action.
The problem was that if employees joined defined contribution schemes, they could face both high and disguised charges and poor investment returns.
The issue was particularly acute among pension savers with employers that already ran schemes because, even if they opened a new lower cost pension, staff were likely to have savings in the old scheme. As a result, the high charges on “legacy” schemes had to be “abolished”, it said.
Another unintended consequence of auto-enrolment among small employers was the creation of an “advice gap”. But the report recommended that the introduction of a kite mark could help them find pension schemes that represented the best value for money.
Professor David Blake, director of the Pensions Institute, said that there was still time to tackle the issue as most small firms were not expected to comply with 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.
The report entitled ‘Caveat Venditor’ argues that auto-enrolment should be governed by the principle of seller rather than buyer beware. The problem at the moment was that, because employees were auto-enrolled passively into schemes, they were essentially “buying blind”, it said.
Visit nowpensions.com for more information about defined contribution pension schemes.