WARRINGTON South MP David Mowat warned that many employees are being charged six times the normal rate for company pension contributions. And he told ministers that older auto-enrolment charging schemes are robbing many of a decent pension.
Mr Mowat highlighted a recent Cass business school report that says that many older defined-contribution schemes charge 3% or more.
"That is six times the best practice of newer schemes, and it is costing many tens of thousands of people the chance of having a decent pension," Mr Mowat said.
He urged the government to "act to ensure that people cannot be auto-enrolled into those schemes—by using either a kitemark or a charges cap."
Pensions minister Steve Webb replied: "It is vital that people are enrolled in schemes that offer transparent and value-for-money charges. The National Employment Savings Trust's low charge structure has set a benchmark, prompting several competitive alternatives in the market, and I have called for providers to guarantee not to enrol people into high-cost legacy schemes."
Pressed further by Mr Mowat, the minister announced that Fidelity has promised that fees in its default funds will not exceed 1% and that existing scheme members will have the opportunity to switch out of their current funds. That followed Aviva's statements that its schemes will have a charge of not more than 1% and iIt will not allow auto-enrolment into any older-style schemes.
"I encourage other firms to follow suit," Mr Webb said.
After the debate, Mr Mowat added:
"Auto-enrolment will mean many more people than before saving for their retirement, but I am concerned that millions of inexperienced and unsophisticated savers are now being forced to invest in a system that is rotten.
"The Government needs to be far more radical in its approach to the private pensions industry, otherwise we are headed for another mis-selling scandal."