The TUC and consumer group Which? have urged the government not to give in to industry lobbying by ignoring a key recommendation of the Pensions Commission.
The employee and consumer groups say that ministers should reject the alternatives proposed by both the Association of British Insurers and the National Association of Pension Funds as they are likely to lead to both a worse deal for employees.
Lord Turner’s Pensions Commission recommended that a new National Pensions Savings Scheme should be set up with contributions of 4% from the employee, 3% from the employer and 1% tax relief. This would be invested with a target to keep management charges at 0.3%.
But ministers are expected to hear an alternative from the Association of British Insurers at tomorrow’s meeting.
It wants to establish private savings schemes similar to existing stakeholder pensions to invest the contributions, saying that charges would need to be 0.7%.
However Which? and the TUC cite experts who do not believe that the 0.7% figure can be met, and that the charge could be more than 1%.
Although these differences in charges may appear quite small, they can make a big difference over the lifetime of a pension, the groups said.
Calculations based on a set of standard assumptions about future investment growth show that the average employee who pays into a scheme with higher charges could be almost £25 a week worse off if charges were 1% and even if charges only went up to 0.7% the average employee would still lose over £15 a week, they said.
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Peter Vicary-Smith, chief executive of Which? said: “‘Time is running out for the working people of Britain and the Government needs to respond positively to Turner’s recommendations before the next generation of pensioners spend their days in poverty. This is a once in a lifetime opportunity for all parties to come together and unite behind ideas which will protect our financial security.”
TUC general secretary Brendan Barber said: “The government is now under sustained assault from the insurance sector to junk the key proposal from the Turner Commission to set up a National Pensions Savings Scheme run on a low cost basis. Yet these conservative calculations show just how much the average employee stands to lose if ministers give in. In practice it could be a lot more.”
