By Matt Ritchie
Responsible investment charity FairPensions has published a new report calling for measures to be introduced to ensure those managing pensions in contract-based schemes are subject to clearly defined standards, to protect savers in such plans.
The report, Whose Duty? Ensuring effective stewardship in contract-based pensions, concludes that though trust-based pension schemes have trustees, whose role is to look out for the best interests of savers, the report notes that those saving into contract-based schemes have no such protection at any point along the investment chain.
Further, the report argues that although the regulatory regime assumes that savers are exercising consumer choice, in reality most will make no active choices about their pension.
Measures the report suggests to address the situation include applying fiduciary standards to all those managing people’s pensions whether trust- or contract-based, and setting up governance structures such as policyholders’ committees to put savers’ interests at the heart of insurance company decision-making.
Encouraging business models that eliminate conflicts of interest was another recommendation, along with strengthening the standards which schemes must meet in order to qualify to be used under auto-enrolment.
Head of policy and research at FairPensions Christine Berry said the Kay report, released last week, points out consumers have good reasons for not trusting the finance sector and it’s in the industry’s interest to address that.
“Asking savers to remain opted in to pension schemes they know little or nothing about demands an act of trust. Both industry and government must act to ensure that this trust is earned,” Berry said.
Today FairPensions launch their report on governance of contract-based pensions - the pensions into which the majority of British workers are now saving.
Labour shadow pensions minister Gregg McClymont said the party’s policy paper, Pensions people can trust, also identified weak governance of contract-based pensions as a root cause of poor practice.
"The FairPensions report rightly focuses on structuring pensions so that the interests of savers are the priority for all schemes. Labour believes putting the saver first is a big part of ending pension rip-offs,” he said.
"Good governance is key to creating confidence in pensions, but excessive costs, poor annuities, exit fees and deferred member penalties all undermine people's willingness to save into a scheme.
"FairPensions’ conclusions are right - trust is vital in creating pensions people can trust, and the industry and government must now act to ensure that this trust is earned."
Access FairPensions’ report here