Interactive Investor

Big day for pensions puts value for money top of the agenda

30th January 2023 13:51

Jemma Jackson from interactive investor

Today, the government announced a spate of pension consultations and documents.

Today has inadvertently become ‘Pensions Day,’ with the government announcing a spate of pension consultations and documents, with value for money firmly at the top of the agenda.

With Consumer Duty coming into view, this is good joined-up thinking from the DWP. In a world where pensions and ‘value for money’ sadly aren’t always synonymous, and where many UK consumers don’t even know if they are getting good value or not, a strong focus on improving pension engagement and delivering better outcomes is really welcome.

Interactive investor research among a general population sample of 2,000 using Opinium* Research found that 77% of people still do not know how much they pay in fees for their pension. And a third didn’t know the risk level of their pension. 

Interactive investor is a strong advocate for pension transparency, and unlike most providers, charges a fixed monthly fee, so people know what they are paying in pounds and pence for their platform administration.

On Value for Money

Alice Guy ACA, Personal Finance Editor, interactive investor, says, says: “The DWP consultation on value for money is great news for pension savers. 'Value’ is so hard to quantify as it’s so subjective. But it’s clear that in order to work out if you’re receiving good value for money, you first need to know exactly how much you’re paying and you also need to be able to compare across product types.

“And in a world of complex pensions charges and obscure outdated language, that’s still far too hard a task for many. The industry still makes it too hard for consumers to work out costs. At the moment, pension savers are often left bewildered, with information on fees and investment performance buried deep in the small print.

“With millions of British workers relying on their pension income for a comfortable retirement, it’s vital that pension providers prioritise fair and transparent pricing. We need to build trust in the pensions industry and make it easier for pension savers to maximise their investment wealth.

“The consultation is a welcome first step in establishing a common assessment framework for pension providers.”

A need for engagement

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “We all know that cost is only one determinant of value. Investment performance and quality of service are equally important.

“Pensions savers want visibility in what’s happening under the bonnet of their pension and where they are invested (and what in), in an easily digestible form. Without that, it’s hard to get a handle on value for money. The challenge for the regulator is to get all stakeholders singing from the same hymn sheet.

“Efforts to bolster value for money could be viewed simply as a tick-box compliance exercise if they aren’t supported by efforts to bolster engagement. The government’s own research found that attitudes to pensions were characterised by detachment, fear, and complacency, which acted as barriers to engagement. Interactive investor’s Great British Retirement Survey 2022, involving 10,000 savers, found that many savers’ retirement pots are being compromised by simply ‘not knowing’ enough about them. This should be addressed through suitable policy initiatives involving providers and employers.

“It also lays bare the importance of pension education from a young age. Having an understanding of pensions at an earlier age could make a big difference to retirement outcomes.”

Small pots

Alice Guy adds: “The challenge of managing multiple small pension pots is a potential headache for investors and often makes it harder for savers to make investment decisions and maximise their pension wealth – and control their costs. Anything that makes consolidation easier must be welcomed. But regulators need to tread carefully as they consider automatic pension consolidation options, to help ensure investors remain in the driving seat and can seek out the best value options. Automatic consolidation could be a barrier to people finding the best solution for their needs as it’s is a blunt instrument and doesn’t always offer the best outcome for pension savers.”

*The Show Me My Money research was conducted by Opinium on behalf of interactive investor. Opinium interviewed 2,000 people between 26 and 29 November, 2021

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