Labour MP Alex Cunningham is demanding tougher regulation for workplace pensions, as the UK pension system is no longer “properly geared to the interests of people”.
The shadow pensions minister argued that this “is a national scandal but, to a large extent, an invisible one”.
Mr Cunningham’s remarks are part of a report published today (15 December) by think tanks Fabian Society and Bright Blue, which are urging politicians to find a cross-party consensus for the next stage of pensions reform.
Pensions minister Guy Opperman, general secretary of the Trades Union Congress (TUC) Frances O’Grady and managing director of Confederation of British Industry (CBI) Neil Carberry are other contributors of the paper.
Despite supporting government’s policy of auto-enrolment, Mr Cunningham argues that the current workplace defined contribution (DC) system doesn’t result in a pension.
However, it “provides instead a pot of savings, which workers are expected to use to negotiate the best pension deal they can”.
He said: “But very few people will have the combination of actuarial, economic and investment skills to do so – and we can’t expect them to.
“Their pension providers should have a duty to either offer a high-quality pension or be required to default them to such a product provided by another operator.”
According to Mr Cunningham, there are “six glaring absences which must be remedied” before the UK can “have a truly fit-for-purpose workplace pension system”.
1. The creation of a system that always delivers a pension in retirement, rather than some additional saving;
2. Pension providers operating at scale to minimise costs and maximise returns;
3. Governance reformed throughout to ensure that the returns to scale go to the workers the schemes ought to represent rather than to financial intermediaries;
4. Full and clear transparency around decision-making including the costs of investment and whether investments are sustainable;
5. The inclusion of the whole workforce, with levels of contribution to generate adequate retirement incomes for all;
6. Workplace pensions which are realistically designed to give constant pensions regardless of stock market fluctuations.
In the report, pension minister Mr Opperman praised the successes of auto-enrolment, which has now reached 9m people, but also acknowledged that more reforms are needed.
He said: “We also recognise that the long-term success of automatic enrolment can only be sustained if people continue to understand the benefits of saving.
“But it is evident that our work is not yet complete. That’s why we are now carrying out a review of automatic enrolment, looking at ways in which we can improve and enhance pensions saving, and help today’s workers to enjoy a more secure later life.”
Launched last year by the DWP, this review is headed by Ruston Smith, trustee director at The People's Pension, Jamie Jenkins, head of pensions strategy at Standard Life, and Chris Curry, director of the Pensions Policy Institute.
The TUC's Ms O’Grady also addressed auto-enrolment, recommending that employer contributions should from the first pound of earnings.