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
Finacial products from our partners
Property search
  • Get to the point
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

    Recruitment Genius: Claims Administrator

    £16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

    Recruitment Genius: Senior SEO Executive

    £24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

    Recruitment Genius: Online Customer Service Administrator

    £16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

    Recruitment Genius: Digital Marketing Executive

    £18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

    Day In a Page

    Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

    Fishing is on Nigel Farage's mind

    Ukip leader casts a line to the disaffected
    Who is bombing whom in the Middle East? It's amazing they don't all hit each other

    Who is bombing whom in the Middle East?

    Robert Fisk untangles the countries and factions
    China's influence on fashion: At the top of the game both creatively and commercially

    China's influence on fashion

    At the top of the game both creatively and commercially
    Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

    The man known as GOD has a reputation for getting the job done

    Lord O'Donnell's three principles of rule
    Rainbow shades: It's all bright on the night

    Rainbow shades

    It's all bright on the night
    'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

    Bread from heaven

    Dutch survivors thank RAF for World War II drop that saved millions
    Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

    How 'the Axe' helped Labour

    UK will be 'run for the wealthy and powerful' if Tories retain power
    Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

    The price to be paid for challenging the rule of extremists

    A revolution now 'consuming its own children'
    Welcome to the world of Megagames

    Welcome to the world of Megagames

    300 players take part in Watch the Skies! board game in London
    'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

    Charlotte Gainsbourg on 'Nymphomaniac'

    Starring in one of the most explicit films ever
    Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

    Robert Fisk in Abu Dhabi

    The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
    Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

    Vince Cable exclusive interview

    Charging fees for employment tribunals was 'a very bad move'
    Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

    Iwan Rheon is returning to his Welsh roots

    Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
    Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

    It's time for my close-up

    Meet the man who films great whites for a living
    Increasing numbers of homeless people in America keep their mobile phones on the streets

    Homeless people keep mobile phones

    A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before