Millions will not have enough in retirement because pension schemes are poor value for money, warns OFT

 

Personal Finance Editor

Pension schemes are poor value for money and may risk leaving millions short of cash when they retire, the Office of Fair Trading warned today.

The Watchdog's report into the £275 billion defined contribution (DC) pension market said that high charges and poor governance has left the risk of savers losing out in two parts of the market.

The OFT said £30 billion worth of savings in old and high-charging contract and bundled-trust schemes may not be getting value for money.

Meanwhile £10 billion worth of savings in smaller trust-based schemes are also at because of inadequate trustee engagement and capability.

Some five million people currently pay into DC schemes while auto-enrolment - the Government scheme launched last year to force companies to put workers into a pension - will boost that figure to nine million in the next few years.

Clive Maxwell, OFT chief, said: "We have found problems in relying on competition to drive value for money for savers in this market.

"Automatic enrolment has the potential to expand and change the market for pensions in the UK for the better. but it is vital that they are saving in schemes which deliver good value for money."

The Watchdog plans a shake-up of the system to ensure that savers get better outcomes. It has asked the Department of Work and Pensions (DWP) to give the Pensioners Regulator new enforcement powers to tackle the problem of small trust-based schemes.

It has told the Association of British Insurers to set up an immediate independent audit of high-charging contract and bundled-trust schemes.

Meanwhile the DWP will investigate ways to prevent schemes being used for auto-enrolment that contain "in-built adviser commissions" or that penalise members with higher charges when they stop contributing into their pension.

There are also a number of other measures proposed to solve the problem of poor-value pension schemes but has stopped short, so far, of introducing a cap on management charges.

However, Mr Maxwell told the BBC: "We're holding off on that for now, but it may be that a cap is the right thing to do."

Reaction to the proposals was mixed. Malcolm McLean, consultant at Barnett Waddingham said: "This is a damning report and is clearly looking to the pensions industry to put its house in order on charges with a view to pension savers getting much better value for money than they do at the moment."

But Joanne Segars, chief executive of the National Association of Pension Funds Chief Executive, said a proposal for schemes to have governance committees could lead to a conflict of interest.

"The report risks letting down pension savers who need someone solely on their side, with the independence and power to act in their interests," she said. "Employers should be prepared to provide governance themselves or use a master trust arrangement."

Tom McPhail, head of pensions research at Hargreaves Lansdown, also criticised the governance proposals. "The measures proposed are weak and the missing link is getting people engaged with their pension savings. In the long run where we need to get to is to use the efficiencies of setting up group pensions through the workplace and then put individuals in control of their own retirement savings."

Independent Partners: 10 top tips for retirement. Get your free guide here

Suggested Topics
News
peopleChildren leave in tears as Santa is caught smoking and drinking
Arts and Entertainment
A host of big name acts recorded 'Do They Know It's Christmas?' in London on Saturday
musicCharity single tops chart
Arts and Entertainment
Steve Backshall has become the eighth celebrity to leave Strictly Come Dancing
tv
News
people
PROMOTED VIDEO
Arts and Entertainment
tvStrictly presenter returns to screens after Halloween accident
News
peopleFormer civil rights activist who was jailed for smoking crack cocaine has died aged 78
News
i100
News
Boxing promoter Kellie Maloney, formerly known as Frank Maloney, entered the 2014 Celebrity Big Brother house
people
Sport
Dwight Gayle (left) celebrates making it 1-1 with Crystal Palace captain Mile Jedinak
premier leagueReds falter to humbling defeat
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Reach Volunteering: Trustee – PR& Marketing, Social Care, Commercial skills

    Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...

    Reach Volunteering: Charity Treasurer

    Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...

    SThree: Trainee Recruitment Consultant - Soho

    £20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

    Ampersand Consulting LLP: Markit EDM (CADIS) Developer

    £50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

    Day In a Page

    Mau Mau uprising: Kenyans still waiting for justice join class action over Britain's role in the emergency

    Kenyans still waiting for justice over Mau Mau uprising

    Thousands join class action over Britain's role in the emergency
    Isis in Iraq: The trauma of the last six months has overwhelmed the remaining Christians in the country

    The last Christians in Iraq

    After 2,000 years, a community will try anything – including pretending to convert to Islam – to avoid losing everything, says Patrick Cockburn
    Black Friday: Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

    Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

    Britain braced for Black Friday
    Bill Cosby's persona goes from America's dad to date-rape drugs

    From America's dad to date-rape drugs

    Stories of Bill Cosby's alleged sexual assaults may have circulated widely in Hollywood, but they came as a shock to fans, says Rupert Cornwell
    Clare Balding: 'Women's sport is kicking off at last'

    Clare Balding: 'Women's sport is kicking off at last'

    As fans flock to see England women's Wembley debut against Germany, the TV presenter on an exciting 'sea change'
    Oh come, all ye multi-faithful: The Christmas jumper is in fashion, but should you wear your religion on your sleeve?

    Oh come, all ye multi-faithful

    The Christmas jumper is in fashion, but should you wear your religion on your sleeve?
    Dr Charles Heatley: The GP off to do battle in the war against Ebola

    The GP off to do battle in the war against Ebola

    Dr Charles Heatley on joining the NHS volunteers' team bound for Sierra Leone
    Flogging vlogging: First video bloggers conquered YouTube. Now they want us to buy their books

    Flogging vlogging

    First video bloggers conquered YouTube. Now they want us to buy their books
    Saturday Night Live vs The Daily Show: US channels wage comedy star wars

    Saturday Night Live vs The Daily Show

    US channels wage comedy star wars
    When is a wine made in Piedmont not a Piemonte wine? When EU rules make Italian vineyards invisible

    When is a wine made in Piedmont not a Piemonte wine?

    When EU rules make Italian vineyards invisible
    Look what's mushrooming now! Meat-free recipes and food scandals help one growing sector

    Look what's mushrooming now!

    Meat-free recipes and food scandals help one growing sector
    Neil Findlay is more a pink shrimp than a red firebrand

    More a pink shrimp than a red firebrand

    The vilification of the potential Scottish Labour leader Neil Findlay shows how one-note politics is today, says DJ Taylor
    Bill Granger recipes: Tenderstem broccoli omelette; Fried eggs with Mexican-style tomato and chilli sauce; Pan-fried cavolo nero with soft-boiled egg

    Oeuf quake

    Bill Granger's cracking egg recipes
    Terry Venables: Wayne Rooney is roaring again and the world knows that England are back

    Terry Venables column

    Wayne Rooney is roaring again and the world knows that England are back
    Michael Calvin: Abject leadership is allowing football’s age-old sores to fester

    Abject leadership is allowing football’s age-old sores to fester

    Those at the top are allowing the same issues to go unchallenged, says Michael Calvin