Pension scheme holders are finding it difficult to locate information regarding asset class, sustainability, geography and exit fees from their life companies, research by platform Interactive Investor revealed.
A poll of 1,000 UK adults found that almost half (48%) of pension holders don’t know and couldn’t guess how much they pay in charges to their provider, and whether that is calculated as a percentage or in pounds.
Additionally, 32% are unaware that their pensions are invested in funds and that their pots automatically become less risky as they approach retirement.
Surprisingly, nearly a quarter (22%) of scheme members aged 18 to 34 are in low-risk pension options, something that could harm their pot growth in the future.
Interactive Investor said that the “research suggests that swathes of people in schemes from some of the UK’s best-known life companies lack key information to help them plan for their future”.
Retiring ‘in the dark’
Richard Wilson, chief executive at Interactive Investor, said: “In any other industry it would be unthinkable for customers to be given so little idea about what they are buying, and how much it costs.
“And yet thousands of people are taking their retirement journey in the dark – and that means an uncertain retirement destination.
“Now more than ever people need to put their financial affairs in order after a truly terrible year. Let’s help them.
“We call on the industry, the government and regulators to mandate meaningful transparency from the life companies, both in terms of where and how pensions are being invested, and how much they cost. It’s not a big ask – but it is long overdue.”
As part of its research, Interactive Investor asked a panel of consumers from Boring Money to identify if there were any exit fees to specific schemes and how much they were, as well as information on ethical investing, and they were not able to find any.
Becky O’Connor, head of pensions and savings at Interactive Investor, said: “In any other context it would be considered totally wrong for people not to know what they are paying for something – particularly something that is so valuable and can be so costly.
“Pension providers should assume that customers are interested in both the cost of their pension and what it is invested in as a starting point.
“People can’t make good decisions without information. At the moment, the barrier is that people don’t know what they don’t know.
“Once they do know the basics, like their pension is invested in funds, which invest in companies, or that the fee they are paying is higher than average, that information becomes something they can do something with.
“But we need more ‘meaningful transparency’ of information that people can understand and use to take action if necessary.”
Make people part of their pensions
Holly MacKay, founder of Boring Money, argues that there needs to be a greater level of communication and engagement from life companies towards their clients.
“Life companies are where pensions all began. But as the popularity of DIY investment soars, auto enrolment gathers pace, as more people take charge of their pensions, they need to up their game.
“Just because the product structures make it easy for providers to limit a ‘look through’ to the underlying investment funds, often with gobbledygook names, we should not accept this as the status quo. This is not effective communication, nor transparency.
“We need to actually show people that their pension is invested. To communicate the Dragon’s Den concept that they own a bit of these businesses. To reinforce that their money is in the US, Asia, Europe and elsewhere.
“And as demand for sustainable investing continues to increase, we have the opportunity to ride this wave of interest and show people what impact their pension is having.
“I continue to call on the industry to help consumers understand what is actually inside their pension. Without this, we will never win on the engagement front. And without this engagement, trust and interest, pensions will continue to be ‘something done to us’ rather than something done for us.”