Former Work and Pensions secretary Lord John Hutton has called on pension providers to dramatically improve transparency around charges.
In an interview with Money Marketing, Hutton says it is time to get below a surface level analysis of fees charged on pension pots.
He says: “Where does the money go? Who is skimming off what? There’s a level of opacity that really does need to be shattered.”
Chancellor George Osborne revealed a new duty for the FCA to cap excessive transfer and exit fees in January, and since then providers including Aviva, Prudential and Standard Life have all revealed plans to limit charges.
However, Hutton says it is important to attack the lack of transparency in more depth.
He says: “At the moment, we are focused on a level of management fees and charges, and we have the incoming cap, but that’s a very blunt instrument.
“Underneath that there are all sorts of things we need to challenge and push back on.”
The Labour peer adds pension providers must do more to help savers understand what kind of income they can expect in retirement.
He says: “There’s an absolute absence of any kind of benchmarking or understanding that people get.
“DC [defined contribution] will be DC, and I understand that. But I want to see plans much more income-focused, so that people are saving towards a particular level of target retirement income.”
Hutton adds the industry could lead on reforms by introducing “waypoints” for savers throughout accumulation, which provide rough indicators of likely retirement income.
“Then if it’s not what you want it to be, you can make choices to save more or work longer. I really do think the industry has to step
Hutton told Money Marketing last March of his regret at failing to introduce an independent pensions commission following the Turner report in 2006.
Earlier this month, the Labour-commissioned Blake Report again called for a new commission, with an additional remit for long-term care savings.
Hutton maintains it is an idea with merit, particularly when it comes to introducing independent analysis to pensions policy.
He says: “Getting people to save more and to start saving earlier is going to take every conceivable lever that we have at our disposal, and we’re going to have to pull quite hard on all of them.
“The Government on its own, with all its powers of persuasion, is unlikely to be able to do the job because people want some genuine independent analysis.
“There’s an absolute dearth of that at the moment.”
Hutton adds: “Governments hate doing things like this. It gives up power and it sets up someone to say things that might be difficult in the future.
“But this is the number one public policy challenge that as a country we face.”
At the same time, the Labour peer admits his own party is yet to prove it can effectively hold the Government to account on key financial services issues like pensions.
“We’ve got a long way to go. We’ve taken a wrong turn with the choice of our new leader.
“We are running the risk of looking completely irrelevant and out of touch with modern Britain by reverting to a script that seems to have more to do with the 1920s than it does with the 2020s.”