One workplace pension provider cutting charges won’t help most workers if they can’t switch

22 February 2019

Major workplace pension provider The People’s Pension has announced it plans to cut its annual management charges.

Good news for its members, but little succour to other workers who cannot decide for themselves who they want to manage their pension.

At the moment employees have no choice in where to place the pension savings they accrue through a workplace scheme. It is the responsibility of the employer to decide which scheme to go with.

The overwhelming majority of businesses hoovered up into the auto-enrolment revolution have opted for the path of least resistance on this, the government-backed provider NEST.

In a piece I wrote in June, I found that NEST looked after the schemes of 630,000 employers, dwarfing the rest by miles.

The People’s Pension, similarly, is one of the largest providers for auto-enrolled pensions. While it is nice for the members of its scheme that they now can benefit from cuts to the charges, it is of no merit to savers who do not like their workplace pension scheme and want to take up The People’s Pension’s offering – because they have no power to switch.

It is hardly going to increase engagement level in pensions – something we’re being encouraged to be – if people are bundled into financial products they have no say over.

This problem stems from the original decision making when auto enrolment was first conceived. The government decided not to pursue a ‘pension-follows-person’ approach, rather opting for employers to shoulder the responsibility of picking schemes to join.

However, employers aren’t necessarily going to opt for the scheme their employees would pick if they had the choice.

Brits today enjoy a greater scale of choice in the market for financial products than ever before. And government and regulators have made it ever easier to help consumers hop from product to product depending on the quality of the service and value for money. Don’t like your bank? Switch!

Paying too much for your energy? Switch!

Insurance premium renewal rocketed? Switch!

Expensive workplace pension growing at a meagre pace? Sorry, you’re stuck.

There is no consumer market for workplace pensions. It’s akin to the water industry where households have no say in who provides the liquid coming out of their taps, or the rail industry where you’re stuck with an operator depending on the line.

The workplace pensions industry faces the same issue. If it isn’t cured now, in 30 years we’ll be faced with those workers who spent a career with an albatross of a provider and those who didn’t. Those people will face very different retirement outcomes through no fault of their own.

If you’re proactive about your workplace pension, and have issue with your provider, I urge you to find out who is on your company’s governance committee and discuss it with them. Perhaps even get yourself on the committee and start helping your fellow employees to push your employer for change.  That is unfortunately your only avenue for now.

Ultimately the move by The People’s Pension is welcome because their customers will now benefit from more of the growth of their pots. If the firm’s move jolts everyone else into cutting prices, then great.

But I’m not keeping my hopes up for now.