The Report calls on the Government to reassess the case for establishing one body with sole responsibility for regulating workplace pensions. Noting concerns over current gaps in regulation and the potential for further gaps to arise as a result of now having three regulators with a role to play, the Report argues that a single regulator is necessary to ensure that all members of workplace pension schemes are adequately and consistently protected.
The Report also highlights that deferred-member charges and member-borne consultancy charges have the potential to cause serious consumer detriment. It recommends that both are banned by the Government, if significant progress is not made in the very near future by the industry towards ending them.
The quality of communications between pension providers, employers and scheme members will play an important role in determining future outcomes from private pension saving. The Report calls on Government, regulators, and the pensions industry to work together to agree a communications format that sets out clearly the basic, essential pieces of information which pension schemes should provide to their members.
Commenting on the Report, Dame Anne Begg MP, Chair of the Work and Pensions Select Committee, said:
"Under auto-enrolment millions of people will be brought into pension saving for the very first time. The need for rigorous pension scheme governance has never been more vital.
"It is essential that all members of workplace pension schemes are protected from poor governance, irrespective of the particular scheme they are in. We do not believe this is always the case under the current regulatory system and evidence from the regulators failed to convince us otherwise. On the contrary, we are concerned that current gaps in regulation will be exacerbated by the fact that we now have not two, but three regulators involved - The Pensions Regulator; and the new Financial Conduct Authority and Prudential Regulation Authority, set up to replace the FSA.
"The Government should reassess the case for establishing one body with sole responsibility for regulating workplace pensions. This body must be invested with sufficient powers to ensure that all members of workplace pension schemes are given the level and consistency of protection they need.
"The plethora of costs and charges that can be applied to pension pots are not only confusing, they can seriously impact on an individual's retirement income. We are particularly concerned about member-borne consultancy charges and those charges applied to deferred members - people who stop contributing to their pension scheme. Neither can be justified; both should be banned.
"The trend towards lower pension scheme charges is welcome. However, a good average is not sufficient and we remain concerned by the potential for consumer detriment in schemes that persist in retaining high charges. The Regulator should carry out an urgent review of these outliers and take action if it considers this necessary. The Government should also regularly review its policy on capping charges for auto-enrolment schemes and must act without hesitation if it becomes apparent that some members are at risk of detriment."
"Consumers are also continuing to lose out when they buy annuities because pension providers are not doing enough to ensure people are aware that they can shop around for the best annuity rate rather than being obliged to buy an annuity from their pension provider. We believe that it should be mandatory for pension providers automatically to supply their customers with a comprehensive breakdown of all the annuity rates available to them from different providers."
Dame Anne Begg said:
"The current poor standard of communications is a serious cause for concern and needs to be addressed. This is not a case of the more information the better. It is about providing only the information that is relevant to employers and employees, and presenting it as clearly and simply as possible, rather the current deluge of complicated documentation which pension scheme members currently receive."
TUC General Secretary Frances O'Grady said:
"With millions more people saving into workplace pensions, this report rightly indentifies several key changes needed to prevent staff from losing out.
"The TUC supports the call for the government to ban deferred member and consultancy charges. We also share the select committee's concern that the government's 'pot follows member' approach to staff with savings moving jobs could be detrimental for consumers.
"The committee is also right to call for a rethink of the regulatory structure. The growth of auto-enrolment and the growing overlap between regulators means that a tougher but simpler structure will make it easier for good schemes to comply and harder for poor schemes to slip through the gaps.
"One of the priorities for regulators must be to strengthen governance arrangements in DC pension schemes. We strongly support the committee's call for workplace governance committees in the absence of trustee oversight. Giving members a voice in how their scheme is managed should be a key objective."
Neil Carberry, CBI Director for Employment and Skills, said:
"Good pension scheme governance is crucial, but there is no need for a single regulator. The Pension Regulator's own analysis shows that standards of governance are equally rigorous across both trust and contract-based schemes.
"Total charges are at historic lows for active and deferred members alike, and falling. There is no justification for the Government to step in and redesign pension schemes' charging regimes.
"However, it's right to highlight concerns about an automatic transfer system for small pots. Businesses would have preferred a virtual aggregator to a system of automatic transfers and have constantly highlighted the risk such a system could pose to members."
