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Pensions: who is looking after your best interests?

A new report is calling for pension providers to have a duty to work in their customers' best interests.


by Michelle McGagh on Jul 30, 2012 at 14:21

Employee benefits consultants will advise the employers on the schemes but are not regulated, so there is no comeback for consumers if the consultants give poor advice.

Although the insurance companies that provide the pension schemes are the most direct equivalent of a trustee board, they see their role as a platform, linking savers to investment funds, not as a steward for savers’ money.

Asset managers that invest the money have the closest thing to a fiduciary duty, but FairPensions said ‘fiduciary standards are often not adhered to in practice’.

‘Moreover, our research suggests that oversight of their activities by insurance companies is lacking, particularly in respect of external asset management,’ it added.

No part of the pension chain wants to take responsibility for the customers’ best interests, and yet the customer has no power in any of the pensions decisions. FairPensions argues that the introduction of auto-enrolment will dilute consumer power further.

‘Under auto-enrolment [consumers] may well make no active decisions about how their money is invested… but in contract schemes, the saver is assumed to be an active consumer making informed decisions in a well-functioning market. This model is fundamentally at odds with the mechanics of auto-enrolment,’ according to the report.  

The solution

FairPensions is calling for fiduciary duties to be imposed on all parts of the pension purchase chain by the government and regulators. Its call comes just a week after the Kay Review said all those looking after money should act to uphold fiduciary standards.

Christine Berry, head of policy and research at FairPensions, said: ‘As the Key Report points out consumers have good reasons for not trusting the finance sector. It’s in the industry’s interest to address those reasons head on rather than adopting a head-in-the-sand approach.

‘Asking savers to remain opted in to pension schemes they know little or nothing about demands an act of trust. Both industry and government must act to ensure that this trust is earned.’

The campaign group is calling for:

  1. Better governance structures, such policyholder committees, to embed consumer interests in pension companies;
  2. Elimination of conflicts of interest between policyholders and shareholders, where pension providers work to serve their shareholders rather than customers;
  3. Introduction of qualifying criteria for pensions schemes eligible for auto-enrolment to ensure the pensions workers are put in to meet minimum standards of good governance;
  4. Government guidance on default funds (where pension money is invested if no investment choice is made) should provide more clarity on the responsibility every company in the pension chain has.

The backlash

The insurance industry, represented by the Association of British Insurers (ABI), has hit out at the FairPensions report as ‘limited’.

Steve Gay, director of life, savings and protection at the ABI, said although improved customer engagement was welcomed he disputed the argument that no party looks out for the best interests of the consumer.

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5 comments so far. Why not have your say?

David Chapman

Jul 30, 2012 at 18:01

The financial services industry has a shocking record when it comes to looking after customers interests - as evidenced by all the scandals that have erupted over the last few years - I am afraid the industry will see the NEST scheme as yet another way of screwing yet more money in the form of charges and levies from the employee most of which will impact on the long term benefits of the scheme.

I hate to be so negative but this scheme has all the hallmarks of yet another monumental scandal 30 years down the line.

I hope I am wrong - but as said in the article - a powerful independant regulator needs to be permanently and vigilantly on the case

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Rob Walker

Jul 30, 2012 at 18:26

Well. who can explain SERPS or other Earnings Related state pension schemes? Ask the man in the street and you'll get a blank look. So if the general public are sitting ducks for any scam (political or otherwise). Every new scheme attracts the same old cronies (FSA et al) in for a piece of the action to 'Protect our interests' - pull the other one.

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Jul 31, 2012 at 01:06

Will they also address the charges of SIPP pensioneer trustees at the same time, and some of the charges if you decide to change?

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Tony Peterson

Jul 31, 2012 at 06:24

The best interest of a customer would be if the service was free. No charges.

In which case, of course, who would provide the service? No one.

My advice is to provide your own pension by buying income producing assets with any surplus income you have, when you have it. The unholy link between tax bribes from the government and a greedy, but fundamentally unproductive, money shuffling industry should be broken.

That would be in everyone's best interest.

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Tongue of Fire

Jul 31, 2012 at 09:53

The use of a contract based scheme removes the prime duty of care of a trustee from the equation and replaces it with a contractual duty which is no more than a joke. The influx of American providers into this non-trust environment will ensure that all investments will be FATCAed and in other words reinvested into the States and held there at a future loss. Is this really what Britain, whether Little or Great, needs?

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