6th November 2013
Which? is a big campaigning organisation – and a publishing company – but in these difficult and expensive times, it has a very important role to play advocating a fair deal for the consumer.
At Mindful Money, we are a little more circumspect about the current demands surrounding pensions. The UK is currently undergoing the biggest reform to pensions in a generation at least.
It will see millions of people enrolled into a pension for the first time, but a huge amount of responsibility has been placed on the shoulders of hundreds of thousands of small employers which are due to enroll their staff in the next couple of years.
We wonder if clamping down on all charges is the correct thing to do at this stage.
We don’t support high charges, but even the OFT found that schemes in 2012 were charging around 0.51%. So, by and large, charges are already at low levels. However a cross industry cap could see some private sector pension providers struggling to stay in the market certainly for smaller schemes which tend to be more expensive to service. We think that means many more schemes will end up with Nest.
We also think that fund management would almost inevitably have to be passive at this level of charging i.e. tracking various markets for almost all pension investments. We are not sure whether that is absolutely desirable and at least requires a debate.
Finally, the thorniest issue concerns money already invested in pensions sometimes many years ago which may be subject to heavy charges, but that is a bit of a legal nightmare to unwind in terms of contract law. We think it needs a serious review.
Yet a 0.5% cap strikes Mindful Money as not just a blunt instrument. It may be impossible to apply to these older contracts. The worst thing that could happen is that what is seen as a hard hitting, pro-consumer reform fails to deal with the part of the market at most 10% where action is most needed. It wouldn’t be the first time in the history of pension reforms that has happened.
It also feels as if Which? would really prefer a system involving many fewer pension providers – at most half a dozen – but maybe only one. That might therefore be Nest as by far and away the biggest scheme perhaps with a few other industry wide style schemes on the Dutch model for instance (though the Dutch system has had its fair share of problems as well).
A central hub would take in most contributions and then sub-contract out the management say in the way the Norwegians run their sovereign wealth funds. That would really screw down costs. But it is not the system either Labour or the Coalition have chosen to proceed with which has lot of providers and all sorts of obligations placed on employers.
In summary, Mindful Money wouldn’t sign at least not yet.
Yet, the really frustrating issue from the point of view of employees/investors is that you do not have much control. These decisions rest with the government and your employer. We think Which? is oversimplifying a complex issue which is not easily addressed in a petition. You may not agree and say cutting charges must be the priority in which case, you should sign up as soon as possible.