UK - The Government should cap defined contribution scheme charges to match the existing limits on stakeholder pensions to avoid complaints about ‘mis-selling', the Workplace Retirement Income Commission says.
In its final report into the failings of the UK savings landscape - launched in February - WRIC said the government must ensure good value for money by capping DC charges at stakeholder level of 1.5% per annum for the first ten years, and 1% thereafter.
WRIC chairman and former Treasury Select Committee chairman Lord McFall (pictured) said: "There's no point in bringing people into pensions that will erode their savings through high fees. The government should set a clear ceiling on the charges that will be allowed under auto-enrolment."
WRIC - backed by the National Association of Pension Funds - said the UK has many small, inefficient pension schemes so new structures need to be developed to allow bigger, low-cost pension schemes to operate.
It suggested defaulting small pots into places where they can be managed efficiently, including the National Employment Savings Trust, which is currently banned from taking them.
Elsewhere, the commission said the 8% minimum contribution set by the government's auto-enrolment reforms will not be sufficient for many people and should be increased following the government's review of auto-enrolment in 2017.
However, the Confederation of British Industry said increasing the minimum compulsory pension contribution is not the right answer.
CBI director for employment Neil Carberry said: "The current plan to introduce a floor of 8% saving from next year remains the best way to ensure more people who can afford to save do so. Further increases in the minimum contribution would put employers and employees under even greater financial pressure, and may drive people away from pension saving altogether."
Association of British Insurers director of life and savings Maggie Craig said: "Saving into a DC pension scheme remains the best way to save for the vast majority of people. Employer contributions and tax relief add to the value of the pension pot. Most providers offer charges of less than 1%. This covers the advice and investment expertise needed to make sure people get a decent return on their savings."
The ABI said the report focuses too much on the past.
Craig added: "The issues it raises should not be dismissed but are already on the agenda and being actively addressed. The shift to the new pensions world is already underway and it's time to look forward rather than back."
Barnett Waddingham consultant Malcolm McLean said private sector employers could be persuaded to offer better than average schemes to their workers if the government allowed them extra tax concessions, financed if necessary, from the savings made from increased contributions planned in the public sector (£1.2bn in 2012/13).
The commission also said too many people are being short-changed by their annuities and the government and industry must work together to ensure the majority of people end up in the best annuity.
And it called on government to work with the industry to develop new products that help mitigate risk, saying employers must be incentivised to take on a share of pension risk.
WRIC also said the UK needs to be a nation of savers not spenders and savings products must become more accessible.
WRIC's final report was delivered a few months earlier than scheduled because it said the key problems are already clear and with auto-enrolment just round the corner there is no time to waste.
The top stories this week were the High Court's decision to block the £12bn annuity transfer from Prudential to Rothesay Life, and a separate court ruling that 'raises the bar' for pension rectification exercises.
Guaranteed minimum pension (GMP) equalisation has soared to the top of pension schemes' to-do lists, with 58% stating it is a priority project, research from Equiniti has revealed.
Professional Pensions is holding its defined contribution (DC) conference on 4 September.