Pension adviser labels auto-enrolment ‘second mis-selling crisis’

Auto-enrolment will trigger a "second crisis of pensions mis-selling" which will hit the poor hardest, an adviser at Deloitte has claimed.

David Pitt-Watson, senior adviser at Hermes Pension Management and adviser to Deloitte, (pictured), warned over a lack of restrictions on the quality of pension products provided for auto-enrolment.

The government has said auto-enrolment reforms will put in place strict criteria which employer schemes must meet to qualify.

But in a letter to the Telegraph today, Pitt-Watson claimed there will be no restrictions on how workplace pension savings are invested, or any record-keeping requirements on providers.

He said restrictions on contributions into the National Employment Savings Trust (NEST), the vehicle for workers whose employer has no provision, will push employers towards unscrupulous pension providers.

"NEST can only take a contribution of £4,200 a year from any employee; more than that, and you need a private provider," he said.

A spokesperson for NEST said: "The reason NEST has a contribution limit is because it is aimed at lower earners and this helps to keep NEST focused on that target market and complement their exisiting provision."

Pitt-Watson added if employers reject NEST due to the contribution limit, they may place employees in schemes with unfairly high charges.

"We know from past mis-selling scandals too few people understand how charges work, and over its lifetime, an annual charge of 1.5% swallows up 38% of your pension in fees," he said.

However, Tom McPhail, head of pensions research at Hargreaves Lansdown, said Pitt-Watson's focus on charges is disproportionate.

"Pitt-Watson overstated the importance charges have in determining the pay out a pension investor receives from their savings," said McPhail.

"His claims about charges focus on a peripheral element of the overall pensions equation."

Pitt-Watson is part of the lobby group the Royal Society for the Encouragement of the Arts, Manufacture and Commerce.

In December last year, the Society published Pitt-Watson's damning report on the UK pensions industry, claiming it was "hugely inefficient" and "not fit for purpose".