An agreement has been reached between the UK Office of Fair Trading (OFT) and The Pensions Regulator (TPR), whereby the two organisations will propose improvements to defined contribution (DC) workplace pension schemes, in order to make sure pension savers get value for their money.
The OFT said today that it is calling for changes to the £275bn DC workplace pension market, following its market study which revealed that the complexity of pension schemes makes it difficult for pension savers and employers to choose the right product. Approximately five million people are currently saving into DC pension schemes and now that the Government has introduced auto-enrolment, the numbers of savers are expected to increase to nine million over the next five years. However, auto-enrolment could cause some problems for employers who are responsible for deciding which pension scheme to choose for their employees, as smaller businesses with limited resources may not be able to assess the value of certain pension schemes.
According to the OFT, savers may not get value for money from old and high charging contract and bundled-trust schemes, which contain around £30bn of savings, while smaller trust-based schemes, which contain around £10bn of savings, may not provide value for money due to a lack of trustee engagement and capability. The OFT also said steps should be taken to improve the scrutiny of pension schemes.
To address all these concerns, TPR has agreed to assess which smaller trust based schemes are not delivering value for money, while the Department for Work and Pensions (DWP) will consider if new enforcement powers are required by the TPR. The Association of British Insurers (ABI) and its members have agreed to an immediate audit of old and high charging contract and bundled trust schemes, which will be overseen by an independent project board. The ABI has also agreed that its members will establish independent governance committees, in order to strengthen the scrutiny of pension schemes on behalf of employees.
Chief Executive of the OFT, Clive Maxwell, commented: ‘Automatic enrolment has the potential to expand and change the market for pensions in the UK for the better. Whether people are starting pension-saving for the first time through automatic enrolment, or have already been saving for years, it is vital that they are saving in schemes which deliver good value for money. ‘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. It is important, particularly given that automatic enrolment is already under way, that these measures are implemented rapidly.’