A series of reforms have been agreed between government, regulators and the pensions industry to ensure millions of workplace savers get value for money from their defined contribution schemes, the Office of Fair Trading said today
Following a major market study of workplace schemes, the watchdog found individual savers and employees often lacked the capability or incentive to assess value for themselves. Complex products had contributed to the difficultly of workers making the right choices about their pensions.
OFT chief executive Clive Maxwell said: 'We have found problems in relying on competition to drive value for money for savers in this market. We've therefore worked closely with the government, regulators and industry to agree a set of measures that we believe are an important step in helping to ensure that savers get better outcomes.'
Given that auto-enrolment is set to increase the number of workplace pension savers by 80%, Maxwell said it was 'vital' that the reforms were implemented rapidly.
These include assessment by The Pensions Regulator of small, trust-based schemes, which the OFT singled out as not delivering value for money. The Department for Work and Pensions will also consider whether TPR needs new enforcement powers to tackle the problem.
A second area of concern was old and high-charging contract and bundled trust schemes. The OFT said the Association of British Insurers and its members had agreed to an immediate audit of these schemes to give a full picture of their associated charges and benefits. This exercise would be overseen by an independent project board.
Scrutiny will also be beefed up, with the ABI agreeing that its members will establish independent governance committees.
Responding to the report, pensions minister Steve Webb said the government would act on its recommendations.
'We need to ensure those already in pension schemes are getting good value for money, and will be actively involved in the audit of pension schemes sold prior to 2001,' he said.
'We will consult shortly on the full range of options to protect consumers, including minimum scheme standards, and further action on charges and charge transparency.'
At the ABI, director general Otto Thoresen said the pensions and long-term savings industry was 'determined to do all it can to make the reforms necessary to build confidence and trust in workplace pensions'.
He added: 'The schemes principally identified by the OFT as potentially having charges not representing good value for money account for around 10% of the nearly £300bn assets managed by the industry, including closed schemes and schemes that will not be used for automatic enrolment.
'But we agree with the OFT that it is important to review charges to ensure they represent good value for money for today's employers and savers.'
Andrew Warwick Thompson, executive director of DC governance and administration at The Pensions Regulator, said the OFT's recommendations needed to be taken very seriously.
'The central challenge for the regulator and the market is to get to a point where employers, trustees and scheme members can know how much they are paying, what they are getting for their money, and can decide whether this delivers value for members,' he said.
'We will be issuing guidance to trustees next month to help them assess the value for money of their scheme.'
Malcolm McLean, consultant at actuaries Barnett Waddingham, called the report 'damning'.
He said: 'It is clearly looking to the pensions industry to put its house in order on charges with a view to pension savers getting much better value for money than they do at the moment.'
McLean added: 'Probably the only real surprise in the OFT report is that it has stopped short of recommending a specific cap on annual management charges - on the grounds that it would be too complex and problematic to implement. This is still open, of course, to the government to introduce particularly in respect of default funds in auto-enrolment schemes and it is possible this will still happen in due course.'