Savers clueless about impact of fees on pensions
Consumers do not consider fees and charges as a vital component of value for money in pensions, according to a survey of 15,000 pension scheme members.
The study was carried out by NMG Consulting and co-ordinated by law firm Sackers on behalf of the independent governance committees (IGCs) of 11 insurance companies and pension providers.
Through workshops and an “extensive online survey”, the study tested 23 attributes that members rated as important when considering value for money in their pension saving.
The study found consumers were most concerned about “good returns”.
However, the study found consumers understood concept of “returns” as extending beyond investment returns to a generally good outcome at retirement.
Second on the list of priorities was “controls and safeguards”, with “a reputable, financially strong pension provider” not far behind.
Charges, however, did not even make the top 10 list of priorities.
Workshops with consumers found members viewed the “quality of the overall pensions experience” and “the end result” as more important than fees in isolation.
They also found members did not necessarily make the link between charging and a good return.
Overall, the study found consumers had a very low level of understanding of pensions.
An example of this was that 40 per cent thought they were not in their scheme’s default fund, when in fact more than 90 per cent of members are in a default.
But despite this ignorance, the study found most consumers viewed pensions as important.
The study found that once members began to understand how to achieve a good outcome at retirement, they placed more emphasis on support and engagement.
Sackers associate director Jacqui Reid, who co-ordinated the study, said results offered some “interesting and unexpected insights”, adding she hoped it would inform industry, government and regulatory thinking.
“The research has led the group to conclude that education and ongoing support is vital for increased awareness and to create a greater sense of empowerment in members,” she said.
“There is a great deal of willingness to engage if misconceptions can be peeled away and gaps in learning filled. Members are also more likely to engage and consider saving more (producing better outcomes), if they are more confident about the security of their pension.”
Steven Cameron, director of pensions at Aegon, said members’ emphasis on security was particularly interesting, adding that it “chimed” with Aegon’s own research.
“Recent high profile problems with defined benefit pension schemes such as BHS may have created a general sense of unease.
“We need to do more to highlight the strong protections members of defined contribution workplace pensions offered by regulated providers already benefit from.
“As we seek to encourage member engagement, it’s important we communicate to members of such schemes that the contributions they and their employer are making are held safely to provide for them in their retirement.”
Read the full article as it appears in the FT Advisor.