Members of pension schemes are losing a large proportion of the value of their pension in fees, according to research commissioned by the Royal Society for the encouragement of Arts, Manafactures and Commerce.
The report, by David Pitt Watson, a pension fund manager and chairman of Hermes Focus Asset Management, Building the consensus for People's Pension in Britain shows that employees who are sold pensions at a charge of 1.5% per annum will lose up to 40% over the lifetime of their pension.
It also highlighted that if a typical Dutch and a typical British person save the same amount for their pension, the Dutch person can expect a 50% higher income in retirement. According to the RSC's report, minor changes to the UK's regulatory framework could boost pension returns by 39%.
It also argued Britain should aim for a low-cost system of occupational pensions and that pension savings should be aggregated in a way that will give adequate returns and include collective provision and trustee governance. According to government figures, collective defined contribution (DC) can give up to 39% higher pension return.
In an open letter to pensions minister Steve Webb and other industry stakeholders, the RSA echoes the view of the National Association of Pension Funds in calling for the creation of a limited number of private sector providers to be approved default providers.
The RSA also asked that trustworthy providers be allowed to offer collective DC pensions. In its report, the RSA recommends a Commission of Inquiry be set up by the coalition government to build on the growing consensus about how to solve Britain’s pension crisis.
Pitt-Watson said: “By common consent, the UK private pensions system is not fit for purpose. It is hugely inefficient. The government has taken steps to address the problem but it remains in real danger of spoiling the ship for a ha'porth of tar.
"The government is introducing auto enrolment, but doing little to ensure providers offer good, low-cost products. It has established Nest, and loaned it hundreds of millions of taxpayer money, but has then prevented it from competing by restricting the size of contribution it can take. The danger is we are creating a weakened monopoly rather than healthy competition.
"Regulations in the UK should be changed to enable the establishment by trustworthy providers of low cost collective pensions similar to those enjoyed in Holland and Denmark.What we are suggesting is not some new structure. It is based on tried and tested systems in other parts of the world, and recommended by pensions experts globally. What we need now is consensus, and the will to change."
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