OFT recommends shake-up of 'complex', high-charging pensions
Watchdog finds many defined contribution pensions offer and deliver 'poor value for money'
THE OFT (Office of Fair Trading) has finished an examination of the UK's £275bn Defined Contribution (DC) pensions market - and is recommending a radical shake-up to the "complex" schemes, many of which the watchdog says offer poor - or no - value for money.
The OFT stops short of referring the market to the Competition Commission or insisting pension management charges are capped, reports the BBC. But it found that the schemes are:
Poor value: The watchdog found that schemes worth a total of £40bn - around 15 per cent of the market - are, or may be, delivering "poor value for money". Two areas of the market were singled out as particularly dubious: "old and high-charging contract and bundled trust schemes" and smaller schemes, where the OFT found "low levels of trustee engagement and capability".
The Pensions Regulator has been asked to take rapid action with the latter category - and the government has agreed it can be granted new powers to clamp down on lax trustees if necessary.
Too complex: The schemes are so intricate that employers "lack the capability … to assess value for money", says the OFT, making it hard for individuals to make the right choices. It also found that there was no incentive for employers to make sure they advise their employees well.
The watchdog has recommended the government to "consult on improving the transparency and comparability of pension schemes", says Sky News.
Over-charged: Some of the schemes the OFT deems poor value have high management charges, particularly those set up before 2001. These charges can can dramatically lower the final value of a pension.
Some analysts expected the OFT to introduce a cap on charges. OFT chief executive Clive Maxwell told the BBC: "We're holding off on that for now … but it may be that a cap is the right thing to do." In the meantime the Association of British Insurers has agreed to audit the old and large schemes, some of which make high charges.
The watchdog has also asked the government to stop using certain schemes for its automatic pension enrolment programme because they make high charges when savers stop paying into them. ·