Debbie Harrison: Size of charges have huge impact on pensions

Employers using existing pensions for auto-enrolment need to look for better value.

Debbie Harrison, senior visiting fellow at the Pensions Institute talks to Debi O’Donovan, editor of Employee Benefits, about the impact of higher charges on the eventual pension an employee will receive in retirement.

“Value is much more difficult. This is where employers and their advisers really need to look at what they are getting for the charges,” said Harrison.

New schemes are charged about 50 to 70 basis points (that is, 0.5%-0.7%) for investment and administration, but older schemes, sold in the 1990s or even earlier, might be being charged more.

“They can be charging 1.5%, 2%, we have even come across 3%,” said Harrison. “Three percent is unusual, but you can see it among smaller employers.

“That factor [of higher charges] is far more important than anything else.”

She advised employers that are planning to use existing schemes for auto-enrolment to examine the scheme charges to see if they can get better value.

(This video was recorded before consultancy charging was banned).