Auto-enrolment could lead to pensions mis-selling

| October 11, 2012
Auto-enrolment could lead to pensions mis-selling

The Pensions Institute has warned that the government’s recently launched auto-enrolment programme could lead to workers being enrolled into poor-value pension schemes.

This month employers started to automatically enrol workers aged between 22 years and state pension age into a workplace pension, as long as they earn £8,105 or more.

The scheme has started with large employers such as banks and supermarkets but will be gradually rolled out to all companies, regardless of their size.

The Pensions Institute has warned that some workers may be enrolled into an existing defined-contribution scheme and will have to pay high charges for poor returns on their investment.

In its report the Pensions Institute suggests that auto-enrolment could lead to pension mis-selling allegations on a large scale unless the issue is addressed.

The Institute is calling for the high charges on existing defined-contribution schemes to be brought down to a maximum of 0.5 per cent, bringing them in line with other products available in the marketplace.

It also wants a kitemark system to be introduced to make it easy for employers and workers to identify well-run, low-charge, schemes.

Professor David Blake, director of the Pensions Institute, said: “A clearly signposted kitemark website for good quality value-for-money schemes – available to all employers, irrespective of their size and employee profile – would facilitate fair and equal treatment for all private sector employees, irrespective of how much they earn and the company for which they work”.

Recent research carried out by CoreData on behalf of Skandia suggests that around half of workers are considering opting out of auto-enrolment.

Only 35 per cent of those surveyed said they would definitely take part in auto-enrolment, while 16 per cent said they had definitely decided to opt out.

Adrian Walker, pension expert at Skandia, said: “For the vast majority of people it will be a good option and if they opt out they will be giving up free money from their company and the government.”

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