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OFT calls for pensions crackdown

OFT calls for pensions crackdown

Category: Pensions

Updated: 19/09/2013
First Published: 19/09/2013

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

An Office of Fair Trading (OFT) investigation into workplace pensions has found widespread evidence of schemes offering poor value for money to millions of savers, leading the regulator to call for a crackdown on the industry.

The results of the review come as thousands of firms across the country prepare to auto-enrol their employees into a workplace pension scheme over the coming months.

Auto-enrolment forms part of the Government's drive to address the pensions crisis by encouraging more people to invest in their retirement. Since its launch in October last year, one million workers have been auto-enrolled.

According to the OFT, however, five million people who are already saving into a defined contribution (DC) pension scheme are in some cases not getting best value for money.

Key concerns raised by the review included:

  • Due to the complexity of DC pension products it is often difficult for both employers and employees to make the right, informed choice about their pension schemes.
  • In some instances, employers "lack the capability or the incentive to assess value for money" for their employees, particularly in the case of smaller firms that don't have the adequate financial resources to tackle the problem.
  • The worry that private pension providers offering auto-enrolment schemes are able to hike up management charges for savers who stop contributing to their pension, such as in the case of an employee changing jobs.
  • Smaller trust-based schemes (holding around £10 billion of savings or less) are at risk of delivering poor value for money due to low levels of trustee engagement.

The OFT is calling for reforms that will make the industry more transparent, helping employers and employees to compare pension scheme costs and provider charges.

It is also recommending that the Department for Work and Pensions (DWP) take immediate action on schemes that penalise members when they stop contributing.

So far, industry response has included:

  • The Pensions Regulator (TPR) has agreed to assess which smaller trust-based schemes are not delivering value for money.
  • The DWP has agreed to consider whether the TPR needs new enforcement powers that will enable it to tackle the problems raised by the OFT review.
  • The Association of British Insurers will be investigating its member schemes that charge high management charges. It has also agreed to strengthen the scrutiny of pension schemes on behalf of employees, with its members setting up an independent committee in order for this to be achieved.

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