Labour initiates clamour for a cap on charges of the new-fangled pension products expected to flood the market in April when the governmentís flagship ëpensions revolutioní comes into play, releasing over-55s from the constrictions theyíve faced regarding the accessibility of their pensions in times gone by.
Currently, an assortment of ëdrawdowní products are being produced at a rate of knots by financial service providers in anticipation of the masses of over-55s seeking to invest portions of their pension savings into the stock market and reap the dividends in their retirement.
While one of the key reforms being enacted in April 2015 entails a cap on charges of 0.75% on auto-enrolment workplace schemes, no limits have been imposed on the cost of drawdown products ñ an issued which the shadow pensions minister, Gregg McClymont has voiced needs addressing, in light of the increasing popularity of such products following the scrapping of compulsory annuities.
Mr. McClymont said: ìLabour welcomed the new pension flexibilities announced in the budget, but we are concerned that the government has not thought through the risks of rip-off charges being taken from the savings of hardworking people.î
Labourís announcement comes on the back of the announcement of the Pensions Instituteís consultation paper which primarily concerns itself with the appraisal of the ìpredictability and value for money of the lifelong retirement income.î
The consultation paper forms part of the Labour-endorsed review of retirement income spearheaded by David Blake, which alleges to focus on ways in which pensioners can strengthen their earnings through their defined contribution schemes.
Focussing on how pension products are suited to customerís requirements, what support and advice savers need to feel comfortable in their retirement and the role of Nest in aiding over 55s obtain optimum retirement products, the consultation will conclude in February 2015.
Blake, said: ëWe believe that the subject of this review is crucial to the long-term success of auto-enrolment, a policy objective which has cross-party support. We are interested in generating good consumer outcomes in the face of the significant structural and social challenges facing people at retirement.í
Mr. McClymont adds: ìëI welcome the announcement by David Blakeís Independent Review of Retirement Income that they are studying the case for a new charge cap on pension products offered to savers by their pension provider to replace annuities.
ìLabour is on the side of people who work hard, save and do the right thing and we will act to ensure savers are protected from rip-off fees and charges.î
Tom McPhail, head of pensions research at Hargreaves Lansdown, contests that Labourís qualms with the potential exorbitance of drawdown products prices are farfetched and that respected pension providers ought not to be painted with the same brush as unregulated, swindling firms who need to be cracked down on.
McPhail says: He says: ‘We offer a drawdown plan today that only charges a one-off fee of £90 including VAT ñ far below any possible price cap ñ however we do not believe a price cap is the right answer. A knee-jerk response of “if we can’t understand it, then price-cap it” is an extremely dangerous mind-set to adopt.
‘Drawdown comes in a multitude of flavours, so trying to come up with an effective price cap mechanism would be virtually impossible.’
He continues: ‘The answer lies in encouraging investors to take responsibility for their own money and for a well-regulated industry to help them to select the most suitable solutions for their needs. Even with a price cap on drawdown, the market still needs to help investors shop around for the best value annuities.
‘The greater risk to investors lies not in product solutions from the well-regulated and responsible pensions and advisory sector; it comes from the unregulated advisers and investment schemes who will seek to inveigle unsuspecting investors into spurious schemes which will offer no redress in the event that they fail to live up to their promises.
The mixed signals coming from all parties serves to only further disenfranchise a public already puzzled by the lack of transparency within a pensions sector so close to what is being termed as a righteous ëpensions revolutioní by the current government.
Compare pensions with MoneyExpert.