Ministers under fire over pensions shortfall
The government has been accused of a “huge abdication of responsibility” over the contracting out of the state second pension.
A Which? report claims 4.5 million people who took the option of having part of their national insurance directed into a private pensions plan rather than a state scheme could be left out of pocket.
“A combination of high charges, poor investment performance and a huge abdication of responsibility from the government and the pensions industry has produced yet another pensions scandal,” the consumer group said.
A spokeswoman for the Department of Work and Pensions (DWP) said the details of the report would be looked at “with interest” and would contribute to pensions debate.
But she told politics.co.uk that while the government offered information on the available options on pensions, it was ultimately “up to the individual to decide”.
The scheme was intended to give investors a bigger return than the state scheme by investing it in the stock market, but Which? points out this is not always the case. When poor returns are added to charges by pension providers, it says consumers can lose out.
Of the £35 billion given to the pensions industry to invest since 1988, about £3 billion has been paid to pension providers and financial advisers in charges, Which? reports.
The consumer body estimates 71 per cent of those who contracted out could end up losing out, receiving on average just 80 per cent of what they would have received if they had stayed with the government scheme.
“The government’s saved money, and pension companies have earned billions – the only losers are people who did as they were advised,” said Which? managing editor Malcolm Coles, who himself has lost out under the scheme.
“Given the government’s stated concern over the so-called pensions’ saving gap, it’s high-time it gave us some clear direction on opting out, before millions lose out.”
The DWP spokeswoman told politics.co.uk that people were offered a pensions forecast to help them make the decision, and advice was available through leaflets and on the website.
“Although we can offer the advice, it is down to the individual to make the decision on what suits their lifestyle and their needs,” she said.
A spokesman for the Financial Services Authority (FSA) said it would be bringing out its own research into the scheme and today’s study indicated it was something to monitor.
But noting that returns varied widely from individual to individual, he said: “Really, it’s a question of deciding which horses to back.”
