The Government is taking a colossal political risk with personal accounts and will not avoid liability if the default fund fails to perform, warn leading pension commentators.
Debbie Harrison, a senior visiting fellow at the Pension Institute of Cass Business School, says nine million employees, typically low to medium-earners, will be swept into personal accounts in 2012 and 90 per cent will end up in the default fund.
She says the Government’s commitment to an annual management charge of 0.3 per cent is too restrictive and means funds will be passively rather than actively managed, possibly reducing returns.
Harrison believes millions of people could lose out if default funds underperform . She says these people will see auto-enrolment as implicit advice and blame the Government, not the delivery authority, She says: “Given what happened with defined-benefit schemes, the Government will be thinking of ways to distance itself from liability but this is clearly a Government initiative.”
Legal & General pensions strategy director Adrian Boulding says: “It is a colossal political risk to set up a default fund. The Government will not be able to defer blame to the delivery authority as people will see it as an arm of Government. There is absolutely no way that the Government can avoid liability for any misselling.”