Crackdown on poor value pensions ‘doesn’t go far enough’
The criticism followed an announcement by the OFT recommending a series of reforms after it found the existing structure offered savers “poor value for money”.
According to the regulator, around five million people save into the complex £275bn defined contribution (DC) pension market but the “outdated and high charging contracts” and “bundled” trust-based schemes may not be “delivering value for money”.
The OFT report also hit out at the complexity of some of the schemes, saying it was difficult for individuals and employers to make the right choices and that most employers “lack the capability or the incentive to assess value for money”.
The report comes as the Government’s automatic enrolment initiative is set to see nine million extra savers pushed into saving through DC pension arrangements.
The OFT said it would work with The Pensions Regulator (TPR) on a set of reforms but stopped short of recommending a cap on management charges.
Some campaigners think the reforms need to go further.
Richard Lloyd, Which? executive director, said: “Unfortunately the Office of Fair Trading’s recommendations don’t go far enough to prevent billions of pounds of consumers’ money from languishing in poor value schemes. People need to see a difference today and be confident in the pension scheme that they’re automatically enrolled into, so that they’re encouraged to save for their retirement.
“The Government must go further and set high-quality minimum standards for all workplace pensions as soon as possible, including a cap on all charges.”
Meanwhile, Phil Loney of the Royal London Group, strongly believes there should be an active market for switching between schemes and that this needs to be encouraged by the OFT.
Furthermore, he said it is vital that these reforms are pushed through now, rather than delayed through further consultation.
Paul Matthews, CEO UK & Europe at Standard Life, added: “We must remember that charges are only one element of workplace pensions. Investment fund selection, fund performance and the level of employee and employer contributions can have the biggest impact on members’ final outcomes at retirement.
“So we need to ensure employees understand the key decisions which will influence the income they receive in retirement and that can only be achieved through clear communication.”
However, the Association of British Insurers, whose members run pension schemes, said the impact of new technology, stakeholder pensions and auto-enrolment have combined to drive prices down consistently over the last decade.
Otto Thoresen, the ABI’s Director General, said: “Pension charges are lower, more transparent and more understandable than ever before. This is good news for people saving into a pension. But it is important to remember that the level of contribution and how long someone works remain the most important factors in determining an individual’s overall retirement income.
“The pensions industry is reforming and changing. It is determined to build greater trust from consumers and employers so auto-enrolment can achieve its potential. We will continue to work with Government and other stakeholders in ensuring that pension reform is a success. The OFT report has been an important contribution to achieving that goal.”