Source: Money Marketing, by Mark Pearson
A key part of the automatic enrolment ideology is that employee inertia will result in their accrual of a pension fund. While this may help the government drive people into saving, the same inertia is presumably a factor in a third of all retirees taking the annuity offered by their current pension provider without shopping around.
The Government’s aim is for individuals to create an additional pension pot and bolster their state pension entitlement, which is only likely to reduce in the future due to the effect of our ageing population. A pension pot on its own will not suffice; at some stage it must be used to provide an income.
By 2018, the introduction of automatic enrolment is expected to create an influx of 11 million new pension savers. The knock on effect is projected to treble the size of the annuity market and it is essential the annuity market properly services these customers.
In its recent consultation, ‘Better workplace pensions: a consultation on charging’, the DWP demonstrated in its four client scenarios that the lifetime effect of reducing annual management charges from, say, 1.00 per cent to 0.75 per cent resulted in a increased fund value of between 3.2 and 8.4 per cent.
In light of this, it is surprising to discover how comparitively little attention is focused on the fact that, according to the NAPF and Pensions Institute, between £500m and £1bn in lifetime income is estimated to be lost each year as a result of savers being tied into annuity rates which are not market leading. This could represent up to 8 per cent of the annual annuity market.
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