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Sales of group personal pensions (GPPs) by insurance companies to employers are booming. Industry figures show a 50 percent increase in sales in the past year.
But there are fears that this could be the latest sales bonanza for the insurance industry, already widely discredited by the long-running personal pension mis-selling scandal.
Employers are also being accused of setting up GPP schemes to avoid new occupational pension rules that give scheme members more protection - at a greater cost to employers. So what is going on? Here are some answers.
What is a GPP?
This type of plan is a cluster of personal pensions set up by an insurance company for an employer. Each employee has his or her own pension "pot" under the administrative umbrella of the employer. Both employer and employee will normally contribute to the plan.
Like a personal pension, contributions are invested in the stock market and the final fund depends on how well the investment has performed. If you move jobs, you can take your pension with you.
So why not just buy a personal pension?
There are two main reasons. The first is that most employers are reluctant to contribute to personal pensions taken out by their employees off their own bat, contrary to the hopes of the Conservative Government that introduced group personal pensions in 1988.
But the employer's contribution - typically about five per cent of your pensionable salary - is a valuable way to boost your retirement income. Additionally, employers should in theory be able to negotiate a better deal on charges than you.
Group personal pensions have the same potential disadvantage as personal pensions of high upfront charges, including large commissions for advisers arranging the scheme.
These costs are met by you, not your employer, by deduction from your contributions. Ideally, according to
You should expect to pay no more than an annual fund management charge and possibly a monthly policy fee.
What are the benefits?
If you have previously had no pension with your employer at all, and your employer is offering to set up a good value pension to which he will contribute, this is almost certainly welcome.
Equally, if you are offered the option to change from a more traditional scheme (run by trustees and based either on contributions or on your final salary), you may benefit from a group personal pension if you change jobs frequently, because you are not bound by transfer rules.
What questions do I need to ask?
Find out how much the new scheme will cost you, as you, rather than your employer will be paying. Group personal pensions are regulated under the Financial Services Act (unlike trustee administered schemes, see below) and you have the right to demand disclosure of costs and commissions, as well as obtain performance projections.
You should also ask for details of scheme benefits such as widows' and dependants' benefits and life assurance. Employers should arrange life cover alongside a group personal pension to pay out to dependants if an employee dies before retiring.
How well are group pensions regulated?
Group personal pensions, like other personal pensions, are regulated by the Personal Investment Authority (PIA). This may ring warning bells as the PIA is still attempting to unravel one of the most disastrous financial scandals of all time.
Hundreds of thousands of people were mistakenly advised to transfer from traditional occupational pensions to personal pensions.
The PIA is promising tight monitoring of group personal pensions . But critics point out that last year it relaxed rules which forced insurers to advise each employee individually. Now they can rely on collective advice via videos, seminars and other methods. The argument in favour of this is that it cuts costs.
Occupational pension schemes administered under trust are regulated by the Occupational Pensions Regulatory Authority (Opra). Opra has only been up and running two weeks, so is untested.
It can only act if told there is a problem, as it does not carry out monitoring visits. It is concerned that some salesmen may be using the perceived threat of onerous requirements under the Pensions Act to persuade employers into setting up group personal pensions.
