People in the UK are losing a significant chunk of their private pension through administration fees, a report suggests.
Pension income could be expanded by 40% if collective pension schemes were allowed by law, the Royal Society for the encouragement of Arts (RSA) said. Collective pensions are cheaper to administer and, with more members, can take bigger risks with investments.
The TUC has welcomed the report as an opportunity to show how pension provision could be improved.
The RSA said that a typical Dutch person saving the same amount for their private pension as a typical British person could expect a 50% higher income in retirement.
This was the result of lower charges and better returns from a large scheme covering hundreds of thousands of people. There would be lower administration costs because the pension company would not have to report on an individual's fund.
The group raised the issue of fees in a similar report a year ago. Now it has called for a change to regulations in the UK that would allow these collective schemes to be set up.
"By common consent, the UK private pensions system is not fit for purpose. It is hugely inefficient," said pension fund manager David Pitt Watson, chairman of Hermes Focus Asset Management. "Regulations in the UK should be changed to enable the establishment by trustworthy providers of low-cost collective pensions similar to those enjoyed in Holland and Denmark."
He said that any collective schemes in the UK at the moment must offer a guaranteed income when retirement is reached - known as defined benefit."Because of scandals, such as those at Equitable Life, lawmakers have been keen to ensure that any promise is well defined," the report said.
"As a result, those designing pensions have been encouraged to believe either that they must promise a defined benefit, or that they must create an individual savings account, on which the saver has full claim, but no other entitlement or expectation."
TUC general secretary Brendan Barber said: "This is a very important report that reveals not just how poor the majority of private sector workplace pensions now are, but that it is perfectly possible to make them significantly better."
