Employers should negotiate better pension charges, Napf

Savers whose employers negotiated for lower pension scheme charges could receive a retirement income 17 per cent higher than those who paid default charges, a report from the National Association of Pension Funds has found.

According to a report by Napf titled Closing the gap: the choices and factors that can affect private pension income in retirement, employers who negotiated a pension with the 0.3 per cent long-term rate offered by some providers resulted in a significant increase in annual income.

Charges for stakeholder pensions are capped by law at 1.5 per cent for the first ten years, and one per cent thereafter. People who are stuck with higher charges would need to work three years longer to get the same pension as those who went with the 0.3 per cent charge.

The second major influence was that of savers choosing the right annuity. The report showed that buying an annuity at the lowest rate quoted on open market tables rather than the ‘best buy’ could reduce their pension income by 12 per cent.

Although savers would have to retire two years later to make up for this loss, only a third take the time to shop around for the best annuity.

A separate joint report by NAPF and PPI, titled Treating defined contribution scheme members fairly in retirement, also found that 80 per cent of UK employees have retirement pots of less than £50,000.

Joanne Segars, chief executive at Napf, said: “People are not powerless when it comes to their pension. By making the right moves they can get a lot more for their money without having to pay any more in.

“High charges can eat away at a savings pot and both workers and employers should try to keep them down.

“The annuity system can seem complicated but savers can help themselves by shopping around to get the best possible rate.”

Seven factors meant the difference between a sample income of £2,200 and one of £7,710. Along with finding the right annuity and negotiating lower charges, these included opting in to a pension at 30 rather than 40, paying one per cent more in employee contributions, increasing employer contributions by one per cent, working one year past the state pension age, and annuitising the whole pot instead of taking a lump sum.