Labour would put The Pensions Regulator in charge of policing annuity brokers as part of radical plans designed to put savers at the heart of the UK market.
Earlier this month, Labour set out its pension reform agenda ahead of the May 2015 general election. The party is focusing its attention on charges, annuities and governance.
Speaking to Money Marketing, Labour shadow pensions minister Gregg McClymont says: “Our priority is ensuring everyone gets value for money from their auto-enrolment pension scheme. Why is that not happening for everyone?
“Savers’ interests are not adequately represented in my view. Given that the saver does not actually buy the product, you have got an issue right away. The question we are asking is how do you ensure that savers’ interests are at the heart of everything that happens?”
On annuities, the opposition wants all pension schemes to direct members to an independent annuity broker when they reach retirement. Under Labour, The Pensions Regulator rather than the FCA would regulate brokers.
McClymont says: “We would require all pension schemes to direct members to a brokerage service and The Pensions Regulator would regulate annuity brokers to common quality standards.
“The vision is based around what the bigger, more efficient schemes like Nest and Royal Mail do at the moment.
“It never seemed sensible to me that people who are central to ensuring a saver’s pot is built up do not have a role in ensuring that pot is turned into a decent retirement income.”
The Labour MP stops short of suggesting brokerage services offer members access to rates from all annuity providers.
He says: “In an ideal world the broker would be whole of market but you do not want to make the best the enemy of the good.
“I am not being prescriptive about the percentage of the market the broker would cover, but we can see what the best schemes do already and that has to be the vision for the market.”
McClymont says encouraging the development of “muscled” large-scale schemes is central to Labour’s vision of the UK pension market. The party would look to achieve this through competition and regulation.
McClymont says: “The Labour party thinks the way to bring charges down to 0.5 per cent is to use the billions of pounds trapped in stranded pots to create competition.
“So we say if you want to compete for these billions of pounds of savings, these are the criteria you must meet on quality and cost. On quality the criteria would be independent governance and on cost it would be a 0.5 per cent TER.
“So the carrot for providers to meet the 0.5 per cent cap is they can compete to manage billions of pounds of savings sitting in stranded pots.
“The charge cap would be 0.75 per cent and that would be under review.”
Labour would also hand The Pensions Regulator the power to force small, inefficient pension schemes to merge.
McClymont says: “The pensions market is fragmented and smaller pension providers and schemes have higher costs.
“We need to get that efficiency through scale in place and we plan to give TPR power to force schemes to merge if it doesn’t consider them big enough to deliver value for money.”
The Government is currently considering banning schemes with in-built adviser commissions being used for auto-enrolment. Labour has not yet taken a position on this issue but McClymont says it would ban providers from charging deferred members more than active members.
He says: “Active member discounts need to go. They are a perfect example of the conflicts that emerge when the saver is not the purchaser and in my view they distort the market.
“On commission, that is something we would need to look at closely but I wouldn’t want to be definitive until we have looked at it in more detail.”