The report analysed the advice and brokerage market used by private sector employers whose staff have defined contribution (DC) pensions.
It found that several barriers have been discouraging employers from appointing these services, which meant savers ended up retiring with a poorer annuity deal than if support had been part of their pension arrangement.
In the UK, about 400,000 annuities are bought each year. Although the majority (91%) of DC savers are aware they can shop around, only 50% actively approached other annuity providers. Although it is difficult to predict the cost to savers, the Pensions Institute last year estimated potential loses range from £500m to £1bn.
“People should automatically shop around for the best annuity when they retire, and employers and pension trustees can do more to make this happen,” said Mel Duffield, head of research and strategic policy at the NAPF.
“Whilst insurers are getting better at communicating with savers, it is still the case that hundreds of thousands are failing to obtain quotes and compare prices in the market. Savers need help from an independent source to ensure they understand the options and make sensible choices.”
Legal fears
The NAPF said employers are often too scared to go beyond the legal minimum requirement in helping employees at retirement because of a fear of legal comeback. But these fears are based on misconceptions and can be allayed by a greater understanding of the benefits by helping staff shop around.
Another problem for employers is the complexity of the adviser/broker market.
The NAPF said those working at smaller firms or with smaller pension pots are most at risk because of the employer costs to set up guidance and advice services, and because smaller pension pots are less profitable to the adviser/broker market.
To address the problem, the NAPF said it plans to:
• Launch a ‘Made Simple Guide’ for trustees and employers later this year, which will provide practical guidance about the benefits to scheme members in need of support at retirement and the range of options available to them.
• Enhance its training and development for trustees and employers running DC pension schemes.
• Offer support on how to implement these services, including guidance on the regulatory implications of providing different forms of support and advice, and what to look for when appointing an adviser or broker.
• Explore how it can improve the way the market functions and help DC schemes that are not well served, such as smaller DC schemes and DC schemes where members have smaller fund sizes. This could include setting minimum standards for advisers/brokers to develop a shortlist for trustees and employers.
