Trustees and employers need to support members more when it comes to helping them choose their annuity, the National Association of Pension Funds (NAPF) has said.
A "string of barriers" is preventing employers, who offer defined contribution (DC) schemes to their employees, from putting good services in place to help staff choose their retirement products.
The NAPF said in a report that savers end up retiring with a poorer annuity deal than they could have got if support to 'shop around' in the annuity market had been embedded in their pension arrangement.
Mel Duffield, NAPF head of research and strategic policy, said: "Too many people are still at risk of failing to make the right choices and get the right shape of annuity at the best price. As they approach retirement what they really need from their employers is more support and advice. But at the moment there are market barriers that stop that happening more widely.
"Auto-enrolment will ensure that all employers are helping staff save for their retirement, and it would be a great shame to see some of those contributions go to waste when it comes to drawing a pension.
"People should automatically shop around for the best annuity when they retire, and employers and pension trustees can do more to make this happen."
Employers who offer DC pensions to their staff are only required to offer them some basic information ahead of retirement that encourages them to shop around.
In its report, the NAPF said that employers, who offer DC pensions, are often "too scared to go beyond the legal minimum" in helping staff at retirement, because they "fear legal comeback". However, the pensions body said that this is a misconception.
The advice and brokerage market is also difficult for employers to understand, because of a range of charging and service that is available.
The NAPF said that employers also need to be aware of the pros and cons of the fee and commission-based charging models and the impact that they have on different groups of staff.
The report also said that those working for smaller employers or with smaller pension pots are "most at risk" because of the costs to their employers of setting up guidance and advice services, and because smaller pension pots are less profitable for advisers and brokers.
To help tackle this problem, the NAPF plans to launch a Made Simple Guide and it will enhance its training and development for trustees and employers.
The body also plans to explore how it can improve the functioning of the market and help smaller DC schemes and schemes where members have smaller fund sizes that are not currently being served well.
The NAPF said this could include setting of minimum standards fro advisers/brokers to develop a shortlist for trustees and employers, or the development of a master-arrangement for advice/broker services that can benefit DC schemes so that they may be better served.
First published 26.06.2013
monique_simpson@wilmington.co.uk
