Pension schemes are over-complicated and difficult to understand, the Office of Fair Trading has ruled. In a paper released today, the OFT also found that employers must do more to educate themselves in order than they can make informed decisions on behalf of scheme members.
The paper was the conclusion to an investigation launched in January this year to investigate whether defined contribution (DC) workplace pension schemes were fit for purpose.
The OFT concluded that "competition alone cannot be relied upon to drive value for money for all savers in the DC workplace pension market", and more must be done to inform both pension savers and employers so that best possible practise can ensue.
The paper found that while large schemes were working well, many single employer trust-based schemes were not and the OFT called for the Pensions Regulator to take action.
Tom McPhail, head of pensions research at Hargreaves Lansdown, said that the primary culprits here were the insurance companies and the Association of British Insurers (ABI).
"Its members have agreed to an immediate audit of these DC schemes and whether members are getting value for money," he said. "At the same time they should look at some of the older personal pensions and with profits pensions where routinely policyholders feel trapped by exit charges yet are stuck in old, high cost, underperforming plans."
Angela Seymour Jackson, Aegon’s managing director of workplace solutions agreed saying that some older schemes would benefit from modernisation.
“Some have valuable features, but not all may meet today’s value for money standards. Others would benefit from technological advances. A detailed audit is the right next step to developing industry-wide value for money principles allowing for different features and charging approaches,” she added.
Around £30 billion of current pension savers’ money is in old style and high charging pension schemes.
The OFT also recommended that the Department of Work & Pensions launch a consultation into transparency and charges - which often confuse scheme members - to help reduce the complexity of these schemes.
Jonathan Lipkin, director of public policy at the Investment Management Association (IMA), said that comparability of charges combined with transparency in areas such as transaction costs is critical.
"EU fund regulation offers a useful conceptual approach in the form of the Ongoing Charges Figure (OCF), calculated and presented in a comparable way in every UCITS," he said. "Pensions are clearly not the same as investment funds, but they need their own equivalent of the OCF - a consistent standard that cannot be disputed."
Not everyone feels that the OFT’s findings went far enough however. Consumer rights body Which? said that there should be a crackdown on poor value schemes currently holding billions of pounds of pension savings.
Which? executive director Richard Lloyd said 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.
