Consumer watchdogs The Office of Fair Trading have highlighted a number of issues over how defined contribution workplace pensions are managed.
In the first phase of an investigation, which scrutinised whether the schemes offer retirement savers value for money, the OFT is taking a closer look at a number of causes for concern.
The worries stem from a review into workplace pensions started in January 2013, and include:
- Fears that the way some schemes manage their investments may not leave retirement savers with as much pension cash as they planned
- Two-tier charging structures can leave non-contributing members paying higher annual management fees than contributing members
- Many NEST auto-enrolment pension schemes have poor value financial adviser commissions structures built-in that offer poor value for money to investors
- Too many schemes have too few members and a low level of investment to generate the best returns
- Pension providers detail their charges in different ways that makes price comparisons difficult
- Older pension schemes, started before 2001, have high charges and to not meet current standards
The government started NEST auto-enrolment retirement saving with big employers, like banks and retailers, last year.
Value for money
The program compels employers to set up a pension scheme to include all employees, unless they opt out.
The pensions should meet minimum standards laid down by law.
Most are defined contribution schemes, which call on savers to put aside a set amount of money for their retirement each month. Employers can add to this if they wish.
Pension pay-outs are not guaranteed and will depend on how investments are managed and how much in charges is deducted from the scheme by providers.
The OFT is worried that employees are paying ‘blind’ and are not getting value for money because some schemes have high charges, compared with others.
For savers who have left their employer but still have money in the scheme, the charges are deducted from their fund.
Ongoing inquiry
“In coming weeks, we will discuss our concerns with the industry, the government and regulators,” said an OFT spokesman.
“We want to let these parties know exactly what our concerns are about and to ask what action, if any, they are going to take, if any, to improve workplace pensions for retirement savers.
“At this time we have not ruled out fines or regulatory action.”
Pension firm trade body the Association of British Insurers has welcomed the inquiry and pledged to work with the OFT to ensure a positive outcome from the inquiry.
