Crackdown on poor-value pensions
A crackdown on the pensions market has been ordered by the trading watchdog as it warned that billions of pounds of savers' cash is already at risk of delivering poor value for money.
The Office of Fair Trading (OFT) made a raft of recommendations to make sure that up to nine million people who will be saving into defined contribution (DC) workplace pensions in the coming years do not find their money being gobbled up by rip-off charges.
But consumer campaigners said further action is needed to "prevent billions of pounds of consumers' money from languishing in poor-value schemes".
Up to £40 billion-worth of pension savings could already be in schemes which are delivering poor value or are at risk of doing so, the OFT warned. Around £275 billion of assets is currently held in DC schemes, but this is set to at least double by 2022 as the Government's automatic enrolment scheme is rolled out to encourage more people to save for their later years.
Confidence in pension saving is seen as vital to the scheme being a success - but a report produced by the OFT found that "most employees do not engage with, or understand, their pensions".
The OFT, which looked at how well competition works, said the buyer side of this market is "one of the weakest" it has seen in recent years. It advised the Government to look at improving the transparency and comparability of different schemes, to make it easier for employers to make the right choice.
The Government should also look at preventing schemes being used for automatic enrolment which ramp up management costs for people when they stop contributing to their pensions, perhaps because they have changed jobs, the OFT said.
Clive Maxwell, OFT chief executive, said that with auto-enrolment already under way, the measures should be introduced "rapidly".
Which? executive director Richard Lloyd 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. 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."
Minister for Pensions Steve Webb said: "This report outlines further important ways to help consumers, and we will act on its recommendations. In particular, 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. 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."