Labour slams government pension plans
Shadow pensions minister Gregg McClymont has dismissed government plans for pensions as “rhetoric over reality”.
McClymont’s comments come after pensions minister Steve Webb confirmed this morning that the government will cap pension charges and help people transfer their pension when they move job after April 2015.
But speaking after Webb at the Confederation of British Industry’s annual pensions conference today McClymont said the government’s proposals were “rather concerning” in their lack of commitment.
And he claimed that Webb’s confirmation that introducing a cap on the charges savers are expected to pay pension schemes for managing their money was misleading.
McClymont said the wording of Webb’s statement merely said a cap wouldn’t be brought in before April 2015 rather than confirming a cap would be brought in after that date.
He also criticised the government for failing to clarify what costs might be included in such a cap and urged them to do a comprehensive review of transactional charges imposed on pension scheme members.
McClymont said: “There is a strong suspicion that costs and charges extracted in the investment sphere are too high but until they’re disclosed, that’s a strong suspicion instead of an empirical reality.”
Currently those saving into a pension scheme have to pay an annual management charge to fund managers who invest their savings as well as other fees and transactional costs when investments are bought and sold.
“We’re cautious about saying what we would cap charges at because we don’t know what the government would put in the cap but I would say that we understand that with the annual management charge and total expense ratio, anything above 0.75% would be hard to just justify,” said McClymont.
McClymont said if Labour was voted into government in next year’s general election he would make four key changes to pensions policy.
He said Labour would lift certain restrictions on NEST – the government set-up default pension scheme for firms setting up auto-enrolment for their employees – to make it more competitive with other pension providers.
They would also introduce independent governing committees to oversee all pension schemes; they would force full disclosure of all costs and charges including transactional costs before introducing a cap; and they would “work out what to do with stranded pension pots”.
Stranded pension pots are the savings left behind in a company’s pension scheme after an employee changes job. One of the main worries the government has is that auto-enrolment will create a situation where every person ends their working lives with multiple small pots reflecting the number of jobs they have had – something that would be unlikely to offer value for money for savers.
Webb said earlier in the day that the government plans to make it possible for employees to take their savings with them to a new scheme when they get a new job in a “pot follows member” system to tackle this problem.
But McClymont suggested that Labour would set up “an aggregator” – which appeared to be a bidding system where orphaned pots were redistributed to other pension providers.
He said: “That’s where the aggregator system comes in because a way to [get schemes to bring their charges down] is to use the carrot of the stranded pots market.
“We would say to auto-enrolment providers, if you wish to have access to this, to compete in the market place for the billions of pounds trapped in stranded pots then you have to meet criteria set down by government to become a scheme for automatic transfers and one of those criteria, alongside governance, could be a 0.5% cap on charges.”