Firms began auto-enrolling employees at the start of this month, under the scheme spearheaded by pensions minister Steve Webb – but over 90 per cent of these will enter into the default scheme, the research centre said.
Without a ban many people will end up in default pensions schemes with high charges – and the plans with the lowest charges can deliver pensions 100 per cent larger than those with the highest charges, it said.
“Caveat emptor, or ‘let the buyer beware’ – the normal assumption that applies to the way financial services products are purchased – simply does not work for auto-enrolment because the buyer is the employer but the real customer… is the employee,” said Chris Daykin, trustee director of NOW, the low cost pension fund that sponsored the research.
Professor David Blake at the Pensions Institute said that it was particularly the smaller employers that were likely to have high-charging, poorer value funds as their default, but he was optimistic there was time to sort the issue out.
“Fortunately there is time to address the problem of old high-charging funds, which for historic reasons are still widely used in the smaller employer market,” Blake said, explaining that smaller firms would not have to auto-enrol employees yet.
The report recommended putting a “kite mark” system in place giving simple and clear guidance over the charges pension funds levy.