A damning report published by the Office of Fair Trading this week concluded that defined contribution pension schemes are not delivering value for money for savers.
Specifically the OFT warned that older schemes – which hold about £30bn of savings – have high charges that can seriously reduce the eventual payout.
In fact, annual charges on old schemes can be up to 2.3 per cent compared with the 0.5 per cent that new schemes charge. The disparity means that anyone with an older scheme could see the charges effectively cut their pension pot by up to a third.
In response to the warning and proposals to shake-up pension saving, Which? executive director Richard Lloyd said: "The Office of Fair Trading's recommendations don't go far enough to prevent billions of pounds of consumers' money from languishing in poor value schemes. The Government must go further and set high-quality minimum standards for all workplace pensions as soon as possible, including a cap on all charges."
But Michael Whitfield of the consultancy Thomsons Online Benefits said the focus on charges was misguided. "The emphasis on pension reform now needs to move on quickly from just focusing on low charges to addressing the bigger picture of achieving better pension outcomes for Britain's savers through sustained and relentless pension education," he said.
Tom McPhail, the head of pensions research at Hargreaves Lansdown, agreed that people needed to be encouraged to get more engaged with their pension saving. "In the long run, where we need to get to is to use the efficiencies of setting up group pensions through the workplace and then put individuals in control of their own retirement savings," he said.
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