Is government cooking up a mis-selling disaster?
Has the government created the conditions for perhaps the greatest mis-selling scandal ever, in the rules that put pressure on all employees to save for a private pension?
That's certainly what some pensions experts fear. Here's why.
As of next year, there will be a phased introduction of the obligation on companies to offer their staff access to a giant new national pension scheme, called the National Employment Savings Trust (Nest) or access to an alternative pension scheme.
Enrolment of all of us into a pension scheme will be automatic. We can choose not to save, but we will have to opt out. And it is widely thought that more of us will save, if we have to make an active decision not to do so (rather than vice versa, as at present).
There are also financial incentives for all of us to save. In its fully fledged form, from 2017, for every 4% of income saved by the employee, the employer has to contribute a further 3%, while the government pays in 1%. So for 4% or his or her salary, the employee will see double that going into Nest or another pension pot.
And as of next year, all workers will have to save a minimum of 2% of their income in this way, with 1% coming from the employer.
Now the government assumes that many billions of additional pounds will be saved for pensions in this way, thanks to the financial incentives and the behavioural pressures. And very few people seem to think that's a bad idea, apart from arch libertarians who dislike the nannying implicit in the system that automatically enrols employees into their employers' respective schemes.
But what concerns some is that employers, who will decide what to offer their staff, will have a choice between Nest and literally any other pension scheme available, subject to almost no regulations or restrictions imposed by government.
Now because Nest looks like a good deal, and has the government's stamp of approval, it is reasonable to assume that most employers will go for the easy option of arranging for their staff to save there, or will stick with their existing schemes.
But many thousands of companies offer no pension scheme at all to their employees. And others are phasing out their existing schemes.
If they want to offer their employees the opportunity to save more than £4,200 a year, then they would have to bring in a private pension provider. And if employers don't like the look of Nest, for whatever reason, they can offer their people a private scheme for the whole thing.
And this is where there is significant scope for mis-selling.
With billions of pounds of new money available from employees, employers and the state for saving every year, there will be a sore temptation for insurers, banks, financial advisers and assorted fund managers to sell their pension products to employers, especially smaller businesses, which at the moment make very little pension provision for their staff.
Now it may be that this free-for-all will lead to really useful innovation. That is what the government would hope.
But since pensions are complicated products, it may also lead unscrupulous financial firms to design pension schemes where the true costs and risks are hidden.
You don't have to be cynical to spot that as a danger: if I were to say PPI, split capital investment trusts and endowments, you may discern a clear trend of financial firms taking advantage of their knowledge advantage by designing products where customers are routinely gulled into putting their money into products that seem to offer a much better deal than is actually the case.
I spoke to a minister about this, who confirmed there would be no restrictions - on fees or asset allocation - on pension plans offered as an alternative to Nest. But he insisted that the government would monitor the market, and would crack down at the first sign of mis-selling.
Well we'll see. Those who have been waiting years for PPI compensation might question whether the government is capable of closing the stable door before the horse has bolted.
And if you want the most obvious place where there could be mis-selling, it is over the fee structure.
Although the fees paid by Nest are low, that's not obvious from the complicated way in which the fees are levied. There is a 0.3% charge on the entire pot and a 1.8% charge on contributions.
In practice, those fees represent a fraction of the 2% or even 1% charges that commercial pension schemes charge.
In practice, I calculate that a typical saver in Nest will be paying a charge equal to less than 0.5% on the value of the pot. But most of us won't see it like that.
We'll see a charge of 1.8% on the money we're putting in, plus a 0.3% levy on the pot, and we'll wrongly assume that Nest is charging more than a private provider that charges 1% or 2% on the whole balance of our savings.
Now you may think that the difference between Nest's 0.5% (or so) charge and private schemes' 2% shouldn't really matter. After all these are really small numbers. But you could not be more wrong.
Making some assumptions about the performance of assets in a pension scheme, it is perfectly plausible that a 1% difference in fees can lead to a 25% difference in the value of the pension that the saver will ultimately receive.
Or to put it another way, choosing a pension scheme that charges only slightly higher fees can mean that a pension received for life will pay a quarter less every week till we expire.
So, to repeat, the scope for mis-selling, by exploiting our naivety about the impact of fees on ultimate returns, is enormous.
Which is why, some would argue, the government should perhaps be a little more nannying when it comes to the competition that Nest will face.