Interactive Investor

More freedom of movement is needed for better value pensions

interactive investor's head of pensions comments on a consultation on defined contribution schemes.

The government today published a wide-ranging consultation: Permitted Charges within Defined Contribution Pension Schemes

The government is consulting on the policy implementation around a number of measures, some of which were laid out in a review published in January, and seeking views on other proposals, including to:

  • Introduce a ban on flat fees for small pots worth up to £100
  • Move to a universal charging structure for defined contribution pensions
  • Drive greater member awareness of pensions
  • Enable people to make ‘informed choices about the product that is best for them’
  • Better understand employers’ policies towards paying a contribution towards employees’ pensions, “where an employee may wish to switch to an alternative fund”

Becky O’Connor, Head of Pensions and Savings for interactive investor, said: “This consultation paves the way for more competition, greater freedom of movement and ultimately better value for people investing into pensions.”

On the request for information about employers’ policies on allowing employees to move out of a workplace scheme and keep employer contributions:

“It is technically possible for an employee to open a personal pension, such as a SIPP, and ask an employer to pay contributions into that instead of the existing employee workplace scheme.

“However, employers often say no when an employee asks if they can move their pension out of the workplace scheme and into another personal pension and still retain employer contributions.

“This is a significant blocker to freedom of movement for people who may be better served outside of their workplace scheme.

While most people might wish to stick with their workplace pension scheme, it should be possible to ‘pick your own’ pension, without risking losing out on employer contributions.”

On plans to simplify charges:

“Interactive investor research highlights that almost half of people (48%) with life company pensions don’t know what fees they are paying.

“With such a significant lack of awareness, people cannot make sensible decisions or compare providers, like-for-like.

“When someone has a larger pension pot, paying a flat fee may be better value than paying a percentage fee. For those with very small pots, as highlighted by the government review, flat fees are not suitable.”

“However, even with this ban in place, it is still possible for someone’s pension to be significantly eroded without them realising and we note with irony that for a consultation paper aimed at making costs simpler, ‘combination charges’ are mentioned 15 times and while they may well give providers the flexibility to meet different needs, they are likely to baffle people.

“The government should also consider how to make it easier for people to move and consolidate very small pots. There could be a rise in the number of people trying to move very small pots to one place, risking further delays in an already busy transfer system.”

Interactive investor charges a flat monthly fee for its Self-Invested Personal Pension of £19.99 a month. That’s £10 per month for the SIPP, and £9.99 for the service plan, which also includes an ISA,  general investment account, and as many free Junior ISAs as you have children - plus one free trade a month.

This flat fee can work out cheaper for pension holders with a pension worth £50,000 or more (based on the average scheme charge of 0.48%), depending on from where customers are moving their pot.

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